Affected by the epidemic, the steel industry, which has been growing rapidly for three consecutive years, has fallen into a trough and encountered a series of problems such as blocked exports, declining demand, high inventories, and falling prices.
He Wenbo, secretary of the Party Committee of the China Iron and Steel Industry Association, said recently that the epidemic had a greater impact on the demand for steel. Judging from the index of the main steel industry in the first quarter released by the Statistics Bureau, the demand dropped significantly.
Specifically, in the first quarter, the demand of many large steel-consuming industries declined significantly. Among them, the new construction area of real estate fell by 27.2% year-on-year, investment in infrastructure construction (excluding electricity, heat, gas and water production and supply) fell by 19.7% year-on-year, automobile production fell by 45.2% year-on-year, and shipbuilding completions fell by 27.3% year-on-year.
Steel exports also face greater pressure. He Wenbo said that due to the epidemic situation, the demand for foreign steel has dropped sharply, and the major export companies have greatly reduced the number of new orders received in March and April. Since the end of March, it has been common for overseas orders to postpone delivery, and there have also been some cases where orders have been reduced or even cancelled.
In addition, affected by the epidemic, China's electromechanical products, which are the main exporters, have also experienced a decrease in export orders or even destruction of orders. Therefore, the demand for steel in the manufacturing industry is expected to decrease. He Wenbo said that if both direct and indirect exports of steel fell by a quarter, this year's steel demand would fall by 3.8%. If the international epidemic situation worsens, the decline in steel demand will be greater; if the domestic expansion of domestic demand offsets the impact of falling exports, the decline in steel demand will shrink.
Affected by the decline in demand, a number of typical indicators, such as steel prices and profits, have experienced significant declines. In the first quarter, the China Steel Price Index (CSPI) monitored by the China Steel Association averaged 101.69 points, a year-on-year decrease of 5.7%. Looking at the situation by month, steel prices continued to decline slightly. China's steel price index was 105.48 points at the end of January, 100.39 points at the end of February, and 99.21 points at the end of March.
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"Demand has fallen, supply has remained stable, and the supply in the steel market has exceeded demand, resulting in a downward trend in steel prices." He Wenbo said that the downward trend in steel prices has not slowed down. As of the second week of April, China's steel price index fell to 96.86 points, the lowest since May 2017.
In terms of inventory, despite the current downward trend in steel inventories, the overall situation of high inventories has not changed. In late April, the social stocks of five major steel products in 20 cities were 16.24 million tons, a decrease from the previous ten days, but it still increased by 9.43 million tons from the beginning of the year.
Luo Tiejun, vice chairman of the China Iron and Steel Industry Association, said that according to the current steel mill production rhythm, coupled with the overseas epidemic situation will have a negative impact on the direct and indirect exports of steel, high inventory may become the norm in this year's steel market.
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It is worth mentioning that, affected by the price drop, the profits of steel companies fell. In the first quarter, the steel association's key statistics of member companies' sales revenue was 891.6 billion yuan, down 5.6% year-on-year; total profit was 18.3 billion yuan, down 50.8% year-on-year; the sales profit rate was 2.05%, down 1.89 percentage points year-on-year.
In addition, the divergence between the prices of imported iron ore and steel prices has also put greater pressure on steel companies to reduce costs and increase efficiency. Data show that the average price of iron ore imports in my country in the first quarter was US$90.59/ton, up 11.7% year-on-year, while steel prices fell 5.7% year-on-year.
Industry insiders said that it is no longer a serious overcapacity in the original sense, but a phased misalignment between production and actual consumption. Special precautions should be taken to prevent the risks of the release of staged production capacity and the recovery of actual consumption being less than expected, accelerate the merger and reorganization efforts, and prevent blind large-scale construction of new steel production capacity.
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Dong Caiping, chairman of the Allied Metallurgical Chamber of Commerce and president of Zhongtian Iron and Steel Group, said that due to the impact of the epidemic, the recovery of the upstream and downstream supply chains still needs time. The market demand is insufficient, and social inventories and corporate inventories are rising. Enterprises need to soberly understand the development situation in the next stage, attach great importance to their own fund security, invest cautiously, and avoid blindly expanding production capacity.
He Wenbo pointed out that resource protection, production capacity layout, and concentration are the three major shortcomings of the Chinese steel industry. Promoting mergers and acquisitions and increasing industry concentration is one of the important development strategies of China's steel industry. Increased industrial concentration will help steel companies to cooperate in areas such as resource control, orderly competition in the market, technological R&D innovation, energy conservation, consumption reduction and emission reduction to achieve the optimal allocation of talents, technology, capital and data. In the next step, we should accelerate the pace of mergers and acquisitions, adhere to market-oriented operating methods, effectively reduce the number of enterprises, realize the optimization of steel production capacity reduction, and increase the effective supply level.
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