In the current challenging economic environment in China, the net profits of steel enterprises continue to see significant declines. According to the latest data, the total profits of steel companies in the first quarter decreased by 47.91% year-on-year, with an average profit margin of only 0.58%.
The China Iron and Steel Industry Association (CISA) held a press conference on April 30 to introduce the operating conditions of the steel industry in the first quarter.
During the first quarter, CISA’s key statistics showed that the total profits realized by steel enterprises amounted to 8.708 billion yuan, a 47.91% decrease compared to the previous year. The average profit margin was 0.58%, down by 0.49 percentage points year-on-year. This indicates that both the total profit amount and the average profit margin in the first quarter were nearly halved.
Furthermore, the decrease in revenue was greater than the decrease in costs during the quarter. CISA’s key statistics show that steel companies had operating income of 1.49 trillion yuan, a 4.55% decrease year-on-year, while operating costs were 1.42 trillion yuan, a 3.99% decrease compared to the previous year.
However, official data from the Chinese government often conceals unfavorable conditions, and the actual situation may be even worse.
Chen Yuqian, Deputy Secretary-General and Director of the Industry Operation Department of CISA, pointed out, “The biggest problem facing the steel industry’s operations at present is low profitability.”
Jiang Wei, Vice President and Secretary-General of CISA, mentioned that in the first quarter, crude steel production saw a slight decline year-on-year. However, due to insufficient downstream effective demand and delayed demand after the Chinese New Year, the decrease in apparent consumption of crude steel exceeded the decrease in production, highlighting significant temporary supply-demand contradictions and a substantial increase in enterprise inventories.
Steel prices continued to decline, compounded by the impact of rising raw material prices such as iron ore, leading to a noticeable drop in corporate profits. The operation of the steel industry has shown a situation of “three highs and three lows” – high production, high costs, high inventory, low demand, low prices, and low profitability.
The overall steel supply exceeds demand. In the first quarter, crude steel production was 257 million tons, a 1.9% decrease year-on-year. During the period, the national apparent consumption of crude steel was 232 million tons, a 4.7% decrease compared to the previous year.
Meanwhile, steel exports continued to show a trend of “increased quantity, decreased price.” In the first quarter, the national steel exports reached 25.8 million tons, a 30.7% increase year-on-year, with an average export price of 789 USD/ton, a 33.4% decrease compared to the previous year.
On April 26, CISA held a symposium on the economic operation of some steel companies in the first quarter. Responsible persons from 18 steel enterprises, including China Baowu and Angang Steel Group, generally agreed that the current round of adjustments in the steel industry will be a long-term process of reducing production. The trend of oversupply and weak demand in China’s steel industry is expected to persist in the long term, and preparations should be made for enduring “tight days.”
Chinese issues expert Wang He recently analyzed the domestic factors contributing to the failure of the Chinese Communist Party’s regulation of steel production capacity. The main factors include:
1. Protectionism by local governments
2. Self-protective behaviors of steel production enterprises
3. Vicious and disorderly competition in the industry
4. Steep decline in downstream demand, particularly in the real estate sector
Wang He also pointed out that while China’s steel industry is massive in scale, its technological level is not sufficiently high, with many shortcomings, particularly in high-end steel products, which are still facing bottlenecks.
In conclusion, Wang He stated that the failure to control steel production capacity domestically, the need to improve the technological level of the steel industry, and the significant trade conflicts caused by the dumping of low-priced steel internationally indicate that the Chinese Communist Party’s policies regarding the steel industry are fundamentally flawed.