China's iron and steel industry, "loss of no reduction in production" strange: increase the loss of output, the output rose against the market

China's steel industry's "loss-not-reduced-production" epiphany shows that in March China's steel industry suffered more losses than in January and February, and the industry's overall loss situation has not changed; in March China's crude steel production still reached 42.08 million tons, an increase of 4.11% over the previous month. This is equivalent to 550 million tons of crude steel production for the whole year.

On April 16, at the “2009 International Conference on Metallurgy and Mineral Products” held in Nanchang, Jiangxi Province, Luo Bingsheng, executive vice president of the China Iron and Steel Association, revealed that in March, the loss of the Chinese steel industry was greater than January and February, and the overall loss of the industry was not change. Shanghai Securities News reported on the 17th that Luo Bingsheng stated that although March’s loss figures have not yet come out, it is certain that March’s corporate losses will be larger than 1/3 of the previous two months. In the previous two months, the average daily steel output was 1.38 million tons, equivalent to 510 million tons of steel production in the year, which was much higher than the national target of 460 million tons this year. The increase in domestic crude steel output and the reduction in exports have all translated into the growth of corporate inventories, causing serious overcapacity.

The China Securities Journal reported on the 17th that for the strange phenomenon of “losing production without reducing production” in the industry, Luo Bingsheng reminded the steel mills that the shrinking demand in the steel industry has not changed and that steel prices will continue to consolidate at a low level. The economic downturn cannot simply be said. Steel mills should estimate the difficulties more seriously.

Domestic steel enterprises are hard to profit this year

“Because of the serious overcapacity in the steel industry, it is impossible for the main business of the steel mills to achieve profit this year.” Yang Siming, Chairman of Nangang Group, also gave a voice to the industry on the 16th. Yang Siming stated that in the month of March, most of the steel mills are in a state of loss, ranging from tens of millions to hundreds of millions, of which large steel mills have suffered more losses. A small number of profitable steel companies also have only a few million in profits. This part of the revenue is mainly generated by the steel industry.

Just after the end of March, China became a net importer of steel products after 2004. The shrinking export market has made it harder for steel companies to make profits. In January-February of this year, the conversion of China's steel exports into crude steel accounted for only 4.52% of crude steel production, far lower than the 8% export guidance plan in the industrial revitalization plan.

Luo Bingsheng said that at present, China's steel exports face four major difficulties. First, international demand has shrunk; the second global trade protectionism has risen; third exchange rate changes have weakened China's steel export competitiveness; and fourth, export tariff policies have been detrimental to steel exports. To this end, Luo Bingsheng suggested that the export tariffs on hot-rolled coils and railway materials should be adjusted. In addition, because imported steel used for processing trade is not subject to tariffs, this objectively creates an unfair tax environment for China's steel exports and is not conducive to fair competition. The government should actively adjust relevant tax policies and promote the export of steel products in China.

Crude steel supply is reversed

What is surprising is that steel companies are clamoring for losses while they are still clenching their teeth and actively producing. Data show that in March China's crude steel production reached 42.08 million tons, a considerable annual output of 505 million tons of crude steel. In the "Iron and Steel Industry Adjustment and Revitalization Plan", it is estimated that in 2009, China's crude steel output was 460 million tons, down 8% from the same period of 2008, and apparent steel consumption was 430 million tons, down 5% year-on-year. The current crude steel output is not only higher than the "plan" forecast, even compared to last year's 500 million tons of crude steel production levels have increased. Domestic steel companies are obviously at a high level of capacity utilization.

However, another set of data shows that the increase in output of steel enterprises is actually reflected in the growth of inventories. Crude steel output increased by 2.17 million tons in the first two months of this year compared with the same period of last year, while the company’s inventory and social inventory increased by 3.75 million tons.

Previously, Morgan Stanley expects global steel demand to drop by 11%, while Deutsche Bank expects demand to drop by 17%. Luo Bingsheng reminded the steel mills that they must take this year's difficulties seriously.

The loosening of monetary policy caused the steel company to lose production

Compared with the pattern of steel prices rising in the first half of 2008 and the steel mills increasing their revenues, the main reason for the steel mills to win initiative in 2009 is to reduce costs and expand profit margins. In January-February this year, the cost of steelmaking in China's steel industry fell by 234 yuan/ton, a decrease of 9.42%; the company's three expenses were 225 yuan/ton, a decrease of 33 yuan/ton. The drop reached 11.46%.

Yang Siming believes that the Chinese mills' objective of not reducing production in March has caused the firmness of the upstream raw fuel prices, such as high coke prices. He suggested that China Iron and Steel Association, like iron ore negotiations, organize steel mills to negotiate with the coal giants, which can reduce the cost of steel mills' fuels and reduce the pressure on steel mills.

At the same time, he pointed out that the root cause of many steel mills' “losing without reducing production” lies in the loosening of monetary policy and the support of bank loans by enterprises, but this situation is difficult to last.