Excess Steel Industry: The Price Of Blood Is Equal To Suicide

- Jan 09, 2019-

What is the predicament facing China's steel industry? Severe excess capacity, exorbitant raw material costs, relatively subdued demand fundamentals, tight capital, and industry-wide losses can basically be described as clear.

The confrontation between excess capacity and depressed demand, in the face of these problems, the domestic steel mills or steel traders, the habitual choice of each other "bayonet", that is, price confrontation, and this simple and crude confrontation can not be effectively improved, the Chinese iron industry is nothing more than self-destruction.

Focus on steel Investment ten annual production capacity is severely excess

According to the data, in 1999, the domestic steel production capacity of only about 100 million tons of the level, and 2012 annual production capacity will reach 900 million tons or higher, turning nearly 10. The endless investment of the iron and steel industry in this period of China's rapid economic development is the biggest culprit; in particular, the local government blindly pursue the theory of GDP, tax theory, invisible to help the steel enterprises continue to disorderly increase the scale of investment phenomenon occurred, it can be said that

Today, 900 million tonnes of oversized steel production capacity is condoned or encouraged by the relevant government departments. According to the data statistics, 2011 National Steel production of 685 million tons, annual steel consumption of 660 million tons; from the data point of view, although the gap between production and marketing is small, but we combined to import more than 15.5 million tons of steel, has been similar, and since 2012, because the global economic growth rate has led to a significant decline in demand for steel, but the domestic steel production is not reduced, 1

~9 month long-term crude steel daily production maintained at a high of more than 1.9 million tons, steel plant internal inventory has now risen to the highest level in history. In the demand is greatly reduced, steel mills between the homogenization of serious competition, steel mills brazenly choose the most direct means of competition-"blood steel Price", not the lowest, only to lower, at the end of August at the beginning of September steel prices even fell to a three-year low. At the same time, the major steel mills are still looking for new production capacity, as large as Baosteel Zhanjiang project, Wisco Fangchenggang Project, Shougang Caofeidian project, Small to Zhongtian iron and steel production line increase and so on, China's steel production capacity is still in the annual tens of millions of tons of orders to increase the scale, steel enterprises almost fell into the losses, The more the cycle of investment is unstoppable, and the severe excess of production capacity will be more acute in the later stages.

The parties encroach on the collective losses of steel companies and steel traders

To say who is the biggest victim of excess steel capacity is undoubtedly the big steel companies and steel traders in it, who are losing money under the squeeze of high costs, subdued demand, falling steel prices and mounting steel inventories. At present, the performance forecast of the 19 main iron and steel smelting processing enterprises, only Baosteel shares in the first three quarters of pre-sales, the remaining 18 enterprises have experienced decline or even loss. Hebei Steel expects net profit to fall 60% to 90% year-on-year, and the net profit of Bengang sheet is expected to fall by 80.76% to 85.89%. Angang shares are expected to lose up to 3.17 billion yuan, a year earlier fell 1426.36%, Shougang shares pre-loss of 320 million-420 million yuan, down 297%-358%.

Hualing Steel is expected to lose 2.52 billion yuan in the first three quarters, down 1351.93% to 1386.5% year on the same period, China a pre-loss of 1.35 billion yuan, a decline of 3180.25%. Steel trade industry, since 2011 Black October, the national 30多万家 large and small steel trading enterprises in different degrees into a low-profit or loss-making stage, a large number of steel and trade enterprises bankruptcy or change to find another production, the number of steel trade enterprises is plummeting, and the current Yangtze River Delta region of steel traders into a serious " Borrowing litigation "frequent period, the entire region of the steel trade business almost stalled."

Steel price blood self-seeking to perish when the mighty broken wrist to save themselves

Today's steel industry can be said to be scarred, but steel mills still choose a rude match price, near the end of the year, the major steel mills in order to better organize the 2012 order situation, in the policy is bound to tilt to the steel traders, it is not difficult to imagine.

The figure of the major steel mills in the later period will be dense in the national steel market to seek customer orders, brought about by the continuous preferential policies, and so on, the current steel homogenization competition is serious, to attract customers, it is only lower than the price, than the service attitude is better. The author believes that the industry-wide losses may not be a bad thing, the terminally ill steel industry, but also need the market inversion mechanism to put a big blood, so that steel mills learn to open their eyes to see the world, rather than blindly buried in the production of steel, only let them ache into the heart can ponder change. However, this trick is not feasible at home; the pain is already painful, but the pain is not the steel enterprises, not those decision-making, because they basically did not pay any price; the pain is more than 300,000 steel traders.

And the root cause lies in the bureaucratic problems of the steel industry system. The author mentioned above that China's iron and steel industry, in addition to being constrained by market mechanisms, is more subject to administrative constraints from all levels of government.

Often, local governments in order to maintain GDP and tax growth, local employment, stability and other needs, will not allow local state-owned steel enterprises according to market conditions to regulate production capacity, blindly pursue the growth of data, so that steel enterprises can only desperately produce, and continue to invest, so as to obtain more government support.

In the market downturn, steel mills are not strong together to standardize the market, is not a unified negotiation to control the overall capacity of the changes, but in silos, from the front of the snow where there is no mess, and this, China Steel Association coordination and treatment mechanism is completely hollow, there is equal to none. Our relevant administrative bodies, more need to consider the system to create a level playing field environment, the establishment of a legitimate state-owned iron and steel enterprises exit mechanism, abandon the previous kind of state-owned steel companies loss of local finance desperately blood "evil means"; "Natural selection of the fittest" This is the law of nature, artificial excessive intervention, Is the biggest cancer to break the balance; our steel industry needs to take out the spirit of the broken wrist, the courage to break the interests of the interest chain, the bankruptcy of the courage to bankrupt, the immediate reorganization of the merger and reorganization, the elimination of backward production capacity to be eliminated, "chaos" in the Iron Fist policy, in order to tide over the wind.