China's steel industry enters the era of low profit, companies need to change their lives

In the past decade, as China's (heavy) industrialization has been rapidly advancing, especially in real estate development, and as cars have entered millions of households, China's steel industry has experienced rapid expansion in production capacity, and crude steel production has soared along with housing prices and car sales. Global iron ore It seems that all steel companies in China must eat up all of them. This has led to the greedy rise of iron ore prices in the world every year!

In 1996, China’s crude steel production exceeded 100 million tons for the first time, roughly the same as that of the United States and Japan. 7 years later, in 2003, China’s crude steel output exceeded 200 million tons for the first time, breaking 300 million tons for the first time in 2005, breaking 400 million tons for the first time in 2006, breaking 500 million tons for the first time in 2008, and breaking 600 million tons for the first time in 2010. 266 million tons. At present, China's steel output is equal to the total output of the world's top 15 largest steel producing countries or regions. At the same time, China's steel output is 6 times that of Japan and nearly 8 times that of the United States! This is exactly what kind of steel scale and steel production capacity?

The world financial crisis that broke out in September 2008 was just a coincidence, but it was not the turning point of China's steel industry. In fact, 2007 was the final sprint of China's steel “Great Leap Forward” and it was the real “turning point”. 2007 was the most glorious year for listed companies in the Chinese steel industry. All performance financial indicators for the year almost set a record for the Chinese steel industry, including net profits, taxes paid, and earnings per share.

However, starting from the third quarter of 2008, the Chinese steel industry began to decline on the right side of the “parabolic”. Until September 2008, 71 key large and medium-sized steel enterprises had already suffered losses and the loss reached 1/3; The monthly loss rose to around 60%; in November of that year, the loss was even closer to 70%. In December of that year, the loss was 62%. The inventory of steel mills and finished goods stocks soared. In the fourth quarter of 2008, the loss of the steel industry reached 47.6 billion yuan. This is the first time that the Chinese steel industry has experienced "full industry" monthly losses and quarterly losses since 2002. It marks that the total expansion of China's steel industry has come to an end and the bitter fruit with severe excess capacity has begun to ferment.

In 2009, despite a 21.5% reduction in global steel production, the Chinese steel industry “fell backwards” under the strong stimulus of the central 4 trillion investment plan. The annual crude steel output increased by 13.4% over the previous year, ranking first in the world. However, it was not until May 2009 that China's steel industry temporarily reversed the loss situation for several months. However, China's steel industry suffered a loss of 28% this year, with a total loss of 16.5 billion yuan.

According to the report of the Ministry of Industry and Information Technology, in 2010, the price of imported iron ore in China rose from an average of US$90/tonne in January to US$145/tonne at the end of the year, an increase of 61%, and the average price of imported iron ore for the whole year was US$128/tonne. This year, the price of iron ore imported by steel companies rose by about US$196 billion***. However, China's large and medium-sized steel companies realized profits of only 89.7 billion yuan over the same period. Most steel companies are in a state of low profit or loss, and the overall profitability of the industry is not optimistic. Another set of data shows that: In 2010, BHP Billiton's profit last year was 112.7 billion yuan, which exceeded the sum of net profit of key large and medium-sized steel companies in China (89.7 billion yuan). In 2010, China's iron and steel industry had a sales margin of 2.91%, which was far lower than the average level of 6.2% for industrial enterprises across the country. The profit rate was the lowest in the domestic industry.

At present, there are more than 7,000 enterprises above designated size in the steel industry in China, of which more than 6,000 are small enterprises. The number of employees in Chinese steel companies is as high as 3 million. Among the 31 inland provinces and municipalities directly under the central government, only Tibet and Ningxia provinces do not have iron and steel companies. The other 29 provinces have iron and steel companies, of which only 10 are in 2009. The output of crude steel exceeds 10 million tons. The output of crude steel in the other 19 provinces is less than 10 million tons. In some provinces, the annual output of steel is even more than 200,000 tons. From this it can be seen that the steel industry is blossoming everywhere in China. Whether it is “big and full” or “small and all”, in short, the vassals separatists and their respective fronts are all for a common goal: to increase the local GDP, Local governments increase revenue.

Unfortunately, behind this low level of redundant construction, in addition to excess capacity and waste of resources, the quality of steel is low and it cannot adapt to high-end demand. In 2009, China imported more than 23.30 million tons of crude steel and exported 26.2 million tons of crude steel. China, as a huge steel producer in the world, has serious excess capacity, large stocks and inventories, but we still need to import large amounts of steel from abroad each year. This is by no means a joke, but a living reality. China may have a large number of Pu steel or low-end steel exported to the countries of Asia, Africa and Latin America each year. However, China also imports special steel and high-end steel from developed countries such as Europe and America every year. This is the national condition of the Chinese steel industry – behind the total surplus. It is the structural shortage and deformity. This is our biggest and dilemma as a big steel country!

This year marks the beginning of the 12th Five-Year Plan. The 12th Five-Year Plan period will be the new starting point for the next 30 years of reform and opening up. As pointed out at the Fifth Plenary Session of the 17th Central Committee last year, "Accelerating the transformation of economic development mode is a profound change in China's economic and social fields. It must permeate the entire process and fields of economic and social development." Looking at the long-term strategy, economic transformation and industrial upgrading are the main melody of current and future economic development throughout China. From this year onwards, it has officially become the “issue”.

Economic transformation and industrial upgrading mean the end of the era of GDP supremacy or GDP worship. All along, the Chinese steel industry is characterized by “high energy consumption, high pollution, and resourcefulness” and it caters perfectly to the rapid growth of gross GDP under the mode of extensive, epitaxial, and total-expansion economic growth. Today, it is saturated with car sales. , Real estate prices have been suppressed, and global iron ore prices have skyrocketed year after year. The capacity expansion of the Chinese steel industry has come to an end. The front is a "dead end." In fact, since 2007, the Chinese steel industry began to show a trend of diminishing marginal profit. At this point, the Chinese steel industry has officially entered the era of low profit (loss).

Therefore, the days of the Chinese steel industry will be even more difficult in the future. In order to realize the sustainable development of the steel industry, we will no longer take “the expansion of the total amount of steel” as our own responsibility. Instead, we will use the “improvement of steel quality” as a new battle slogan. On the one hand, we will re-integrate by vigorously implementing cross-regional mergers and reorganizations. Steel production capacity across the country will increase industry concentration and eliminate overcapacity in the industry. On the other hand, through vigorous implementation of technological innovations and inventions, we will tackle high-end products and truly improve steel quality. This is the only way for the Chinese steel industry to become bigger and stronger.