Steel producers face bleak months ahead

To boost economic growth, the Chinese government has said it will accelerate the speed at which it approves infrastructure construction projects.

However, Xu said the measure will take time to take effect, maybe by the end of this year, or even the beginning of 2013.

Wang Xiaoqi, vice-chairman of the steel industry association, said during a recent key industrial conference that steel companies have to prepare themselves for a long, difficult period into possibly the first quarter of next year, before any stimulus policies might manage to boost the economy in any significant way.

"The unit profit of each ton of steel in China has dropped quite dramatically, to only 1.68 yuan on average," he said. "The figure was 6.8 yuan during the first half of the year."

During the global financial crisis of 2008, each ton of steel was bringing profit of about 50 yuan.

Wang said that up to 83 percent of steel producers are now losing money based on a sample survey among association members.

"The rapid development of the industry, based on increasing output, has gone. For the next 10 to 15 years, the domestic steel demand will stay at a level of 600 million to 700 million tons a year," Wang said.

"The excessive steel inventories at present will influence profits in the future, which points to tough times in the coming months."

Wang added that the main reason for ongoing losses by the steel industry was shrinking demand, while the deeper reason lies in excessive production capacities and low industrial concentration.

At present, China has about 200 companies whose annual steel production capacity is more than 1 million tons.

While the top five producers account for less than 25 percent of the total output, which shows low industrial concentration.

By the end of the last year, China's crude steel production capacity was 850 million tons, much higher than domestic consumption which was about 680 million tons, said Chi Jingdong, deputy secretary-general of the association.

He said the biggest problem facing the steel industry is how to absorb that capacity.

"We must increase exports, and explore new overseas markets," he said.

"But as well as finding new markets, we must reduce costs, save energy, and accelerate the levels of investment in new innovation in the industry - these are the four key issues for steel companies."

In 2011, China added another 56.62 million tons of crude steel output. The indirect export volume was 68.5 million tons while the domestic consumption was 49 million tons, indicating just how important that export market will be.

 

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