In The Past Three Years, 150 Million Tons Of Steel Production Capacity Has Been Cut To Enter The "Deep Water Area"

Under the background of capacity development, China's steel industry is undergoing structural adjustment.

In October 28th and twenty-first Century, the economic report reporter learned from the official WeChat of the China Iron and Steel Association that since 2016, China has cut over 1.5 tons of steel production capacity, which is 114% of the global steel production capacity. To this end, only 280 thousand Chinese workers were rehoused, exceeding the total number of steel workers employed in the United States, Europe and Japan. At present, China's steel market situation has improved significantly, and the utilization rate of crude steel capacity has returned to a reasonable interval of more than 80%.

In the capacity to enter the deep water area, the transformation and upgrading of iron and steel industry is also increasing. Since last year, due to the good market situation of the steel industry, driven by high profits, some regions and enterprises will increase their willingness to invest in the iron and steel industry, and the capacity replacement will be implemented in some parts of the country.

"Iron and steel industry has been carrying out capacity for more than three years, and now it is entering a structural adjustment stage." In October 28th, Zhang Lin, a senior analyst at Jidong China World Trade Center, told reporters in an economic report in twenty-first Century that the environmental policy of limiting production in the past two years was no longer a "one size fits all" policy. The means of administrative control gradually weakened. The main reason was to limit production by market demand. However, this year's continued pessimism on real estate will lead to further narrowing of profits in the steel industry.

Steel enterprises bear pressure in the three quarter

Subject to the pressure of domestic housing enterprises to leverage, the three quarter of many listed steel enterprises operating income and net profit have varying degrees of decline, in the short term, they will still be under certain pressure.

In October 28th, Chongqing iron and steel released its third quarter report in 2019, showing that its operating income in the first three quarters was 17 billion 284 million yuan, down 0.87% from the same period last year, and net profit attributable to shareholders of listed companies was 720 million yuan, down 51.36% from the same period last year.

Chongqing iron and steel explained that the decline in performance was mainly due to the overall sales price of steel decreased by 4.4% compared with the same period last year, and the profit was reduced by 759 million yuan. The price of raw and processed fuels such as ore, coal, alloy and scrap increased and reduced by 824 million yuan. The number of steel sales increased by 4.41% compared with the same period last year, and the profit increased by 100 million yuan.

In addition, the three quarter reports revealed by Baosteel, a steel giant, revealed that Baosteel achieved a total operating income of 216 billion 876 million yuan in the first three quarters of this year, down 3.75% compared to the same period last year. Net profit was 8 billion 874 million yuan, down 43.65% compared to the same period last year. Net cash flow from operating activities was 19 billion 595 million yuan, down 46.68% from the same period last year.

In the single quarter, net profit fell more significantly in the three quarter. In the third quarter, Baosteel achieved a total operating income of 76 billion 100 million yuan, 76 billion 900 million yuan in the same period last year, and a net profit of 2 billion 922 million yuan, compared with 6 billion 281 million yuan in the same period last year.

Baosteel analysis said that the external market uncertainty increased in the three quarter, and Sino US trade friction had an impact. The profit margins of domestic large and medium-sized steel enterprises continued to fall. The overall price of steel products showed a downward trend. In the three quarter, the domestic steel price index and the international steel price index fell by 3.3% and 4.9% respectively. Ore prices continued to rise. In the three quarter, pruschworth 62% iron ore index increased 1.9% in the two quarter, and the price of coal and coke increased at a high level.

CITIC Securities Tang Chuanlin believes that the three quarter is the traditional off-season demand for steel industry, the recovery of demand often comes to the end of mid 9. Seasonal demand will play a role in suppressing steel prices. In July, due to the high cost performance of scrap steel relative to molten iron, the output remained high in July when demand fell, prompting steel profits to continue to narrow. In terms of raw materials, taking into account the iron ore inventory of iron and steel enterprises in about 1 months, the sharp rise in the price of iron ore in June will squeeze the profits of iron and steel enterprises.

Zhang Lin explained to the twenty-first Century economic report reporter: "the sharp decline in net profit is a common phenomenon in the first three quarters of this year, mainly due to the rising of iron ore and other raw materials and the decline in the prices of finished products." In addition to Baosteel and Chongqing iron and steel, Bayi Iron and steel and Panzhihua Iron and steel vanadium titanium also fell sharply in the first three quarters: Bayi Iron and steel net profit 240 million yuan, a year-on-year decline of 58.4%, Panzhihua Iron and steel vanadium titanium net profit of about 1 billion 410 million yuan, a decrease of 31.13% over the same period.

Structural adjustment

Previously, Lv Guixin, inspector of the Ministry of industry and material industry, has publicly stated that this year will promote the outward transfer of steel production capacity in the environmentally sensitive areas such as Beijing, Tianjin and Hebei, reduce the total volume of steel and iron in the region, and continue to promote the structural adjustment of iron and steel industry in Beijing, Tianjin and Hebei. The goal is that by 2020, Hebei and Tianjin will control the crude steel production capacity in the region within 2 billion tons and 15 million tons respectively.

The above reduction is a continuation of the administrative control measures in the past three years. China, as a big iron and steel producer, has basically maintained a dynamic balance between the supply side and the demand side after the structural reform of the supply side, and the export rate is not high. According to the statistics of China Steel Association, although China's steel production and output account for half of the world's total, China's steel consumption is also close to half of the world's total. 93% of the current output is used to meet the domestic market demand, and the proportion of steel exports to the output is only 7%, which has not hit the international market.

This situation is still continuing this year. According to statistics, steel production increased by 55 million 510 thousand tons in the first 8 months, and net exports decreased by 952 thousand tons, which means that the increment was used to meet domestic steel demand, of which 2/3 met the demand increment in the construction field.

For domestic demand and output rising, but iron and steel enterprises performance is falling, Zhang Lin explained, "even if demand is really good, but because of real estate pessimism, high raw material prices, so the performance is not optimistic."

In fact, the rise of raw materials is related to the risk of re production of production capacity, the revival of land and steel, and the inconformity of capacity replacement. Wang Wei, director of the Department of raw materials industry, Ministry of industry and information technology, has publicly stated that some enterprises are seeking new smelting capacity in the name of casting ferroalloys and comprehensive utilization of resources. Some localities and enterprises are engaged in "Digital Games" in the process of capacity replacement, attempting to increase steel production capacity in disguised form.

This disguised increase in production led to 4.92 billion tons of crude steel output in the first half of this year, an increase of 9.9% over the same period last year. The rise in domestic steel production has led to an increase in demand for imported iron ore, which in turn has led to excessive price increases, thereby eroding corporate profits.

Therefore, since the beginning of this year, the Ministry of industry and Commerce has carried out the "look back" work of the public announcement of the capacity replacement plan across the country, and has implemented Joint Disciplinary Measures in accordance with the law, including the duplication of false substitution, the fraud of small businesses, and the improper implementation of the replacement plan.

For the future steel demand and price trend, Zhang Lin predicted: "in fact, China's steel price is lower than that of Europe and America, higher than other regions. Therefore, imported steel products in other regions occupy the share of the Chinese market under the price advantage, and the future demand may slow down, but no cliff has been seen.