China's steel industry's loss is intensified, preferring to "blood-loss production" rather than withdrawing

Under the current mode of blood loss, the reduction of steel companies and even the exit of some steel companies have reached a critical moment. In 2015, I am afraid it is a difficult year for Chinese steel companies.

Many industry insiders said that the first half of the year, "all are losing money, there are not many who can make money." According to the data released by China Iron and Steel Industry (hereinafter referred to as “China Steel Association”), in the first five months of this year, the main business of 101 members of China Steel Association’s steel enterprises lost 16.481 billion yuan, a year-on-year increase (over the same period last year) of 10.361 billion yuan. yuan. As a pillar industry of the Chinese economy, the steel industry is sinking deeper and deeper into the mud. Steel prices have fallen more than iron ore, steel production capacity is oversupplied, demand is shrinking, bank lending is intensifying, and environmental protection is high. These are the "accomplice" of iron and steel enterprises in the loss of mud.

Iron ore price plunged not to fall on steel prices
Iron ore, one of the raw materials directly linked to the profits of steel companies, is the protagonist of this round of commodity plunging. A person in charge of Hebei Jingye Group Shanghai Jingye International Trade Co., Ltd. told the news that “the cost of steel enterprises mainly comes from three major blocks, one is the cost of raw materials, including iron ore, coke, and other fuels and auxiliary materials. The second is energy costs; the other is financial costs." Among these three major costs, raw materials account for about 70% of the total cost, and iron ore accounts for about 60% of the cost of raw materials. According to this ratio, the iron ore cost can account for about 40% of the cost of steel enterprises. “The ratio is definitely the first.”

Since iron ore is very important in the profitability of steel enterprises, in the context of the collapse of iron ore prices, why have steel companies still complained in the past six months? 澎湃News reporters have reviewed the published semi-annual results of listed steel companies in 2015. The reason was found to be that the price of steel fell more sharply than iron ore. The person in charge calculated two accounts for the news. "At the beginning of the year (iron ore price) just broke $70, and now it is $50, down 26%. The price of steel has dropped from 2,500 to a little. Less than 1,800 pieces, down 32%, as the price of another raw coke fell even smaller. Therefore, the decline in steel prices is still greater than the decline in iron ore prices."

The decline in demand is higher than the rate of production reduction in the industry
Under the current mode of blood loss, the reduction of steel companies and even the exit of some steel companies have reached a critical moment. Qin Yuan, an analyst in the steel industry of Essence Securities Research Center, said, "The domestic steel industry is in a serious excess, and it has already reached the point where the market must eliminate some steel mills." In Qin Yuan's view, the most important factor in the steel plant's loss is not that the iron ore price has fallen too deep, but the domestic steel overcapacity is too serious and the demand is very weak.

China Steel Association data show that from January to May this year, the country's crude steel output was 340 million tons, down 1.6% year-on-year, which is the first decline in crude steel production in the past 20 years. Zhang Guangning, chairman of the chairman and party committee of Anshan Iron and Steel Group Co., Ltd. and current president of China Steel Association, believes that “2014 is likely to be a sign that China's crude steel output has entered the peak zone”. Although crude steel production has declined, steel consumption has fallen even more. Data show that from January to May 2015, apparent steel consumption decreased by 5.1% year-on-year.

Pan Jinli of Valin Steel Market Department told the news that "now there is no way to continue the growth of steel demand, and the output of new demand like 'Belt and Road' has not yet been reflected, and the production and demand are not matched."

Even if you lose money, you have to make a hard scalp
However, Pan Jinli also said, "If you let the market come to an end, it will definitely take some time." Qin Yuan told the news that "the steel industry is currently a prisoner's dilemma. In theory, everyone should reduce (production) a little, but I may reduce it first if I completely die." For the demand in the second half of the year, in fact, enterprises are very rational, but Qin Yuan said, “Shoe bills like many enterprises in Tangshan, such as 1600-1700 yuan/ton, have to lose 200 yuan per ton, and they are private. Enterprises, in this case, should be shut down soon, but now it is still dead here, everyone is waiting for someone to die first."

This is due to the fact that a person in charge of the above-mentioned Hebei Jingye Group Shanghai Jingye International Trade Co., Ltd. has another reason. The person in charge told the news that "reducing production and limiting production is more of a market choice, but as far as the current situation is concerned, most enterprises have no obvious production cuts."

In the eyes of the above-mentioned responsible person, funding is an important reason. "Since the year before, the policy of overcapacity industries such as steel has been relatively strict. The capital cost of enterprises has been continuously improved. A large number of steel mills have a large amount of social financing, and these financing costs are very high." These high-funding companies, although their margins are being squeezed smaller, will not easily reduce production. The person in charge explained, “Once the production is reduced, it will involve the depreciation of your assets. Then it will trigger the problem of the debtor’s debt, which is equivalent to the bank’s run. So the company will not easily choose to cut production or stop production.”

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