Iron and steel industry is difficult to escape profitability

Recently, the China Iron and Steel Association (hereinafter referred to as China Iron and Steel Association) announced that in the first five months of this year, the profit of 80 large and medium-sized steel enterprises under the China Iron and Steel Association accounted for 42.8 billion yuan, and the profit rate for product sales was only 2.91%, 0.67% lower than the same period of last year. The total profit realized decreased by 2% over the same period of last year. Total profits and sales profit margins both declined year-on-year.

Previously, the CISA website released an analysis that from January to April 2011, the national steel industry realized sales of 1.1548 trillion yuan, a profit of 33 billion yuan, and a sales profit rate of 2.86%. It was clearly lost to the current one-year bank of 3.25%. The interest rate is also far lower than the average profit rate of 6.2% for industrial enterprises across the country. The steel industry is still in a state of high income and low profit.

This is the fourth consecutive year that the profitability of the Chinese steel industry lost to the bank's one-year interest rate.

According to the "Steel Industry Operation in 2010 and Prospects for 2011" released by the Ministry of Industry and Information Technology at the beginning of the year, large and medium-sized steel enterprises realized a profit of RMB 89.7 billion in 2010, and their sales profit rate was 2.91%, far below the average level of 6.2% of industrial enterprises in the country. Become the industry with the lowest profit rate in the industry.

Not only that, the steel industry has to pay for high iron ore. In January of this year, the average price of imported iron ore was US$151.4/ton, a year-on-year increase of 66.1%. As the price of steel per ton fell by 400 yuan in February and March, the price of imported iron ore also fell by 13%, but the price of iron ore rose again at the end of March. The port price for imported iron ore has reached 183 US dollars/ton in the first half of April. Many steel companies have fallen into losses again.

China Business Network Chief Analyst Ma Zhongpu told the "China United Daily" that China's iron and steel companies lack the ability to strategically regulate the iron ore industry, which is the main reason why steel companies are now in a microeconomic situation.

What is worth noting is that the three major miners have pushed up iron ore prices to suppress the Chinese steel industry, which in turn affects the competitiveness of China's downstream industries. This is another strategic goal for international capital to push up iron ore prices. If Chinese iron and steel enterprises establish their own advantages in the international industrial chain and a certain amount of international rights and minerals, the three major miners will face pressure to reduce their market share if they forcibly raise prices. Only in this way can they form strategic controls that can affect international iron ore prices. strength.

However, some reports said that the losses in the iron and steel industry have always been “shields” in the price of iron ore. On the other hand, domestic steel companies have already begun restructuring and integration as early as several years ago, but they have not made substantive progress in the restriction of local interests. It can be said that the consolidation and reform of the domestic steel industry is basically a "half crane" project. With the increasing concentration of global iron ore resources, the domestic steel industry has not been able to shake off the excessively fragmented and passive situation. It is not surprising that the final result of the “falling off” for international miners.

The data shows that at present, there are more than 7,000 large-scale enterprises in the Chinese steel industry, of which more than 6,000 are small enterprises. The number of employees in China's iron and steel enterprises is as high as 3 million. Among the 31 inland provinces and municipalities directly under the central government, only Tibet and Ningxia have no steel companies. The other 29 provinces have steel companies.

Although global steel production in the country was reduced by 21.5% in 2009, the Chinese steel industry is still “big on the fast track” under the strong stimulus of the central 4 trillion investment plan. The annual crude steel output increased by 13.4% over the previous year, ranking first in the world. However, it was not until May 2009 that China's steel industry temporarily reversed the loss situation for several months. However, China's steel industry suffered a loss of 28% this year, with a total loss of 16.5 billion yuan.

Dong Dengxin, a professor at the Wuhan University of Science and Technology Financial Securities Research Institute, told China Union Business Daily that behind this low level of redundant construction, besides excess capacity and wasted resources, the quality of steel is low and it cannot adapt to high-end demand.

According to an analysis by the China Iron and Steel Association, although the scale of assets in China's steel industry is increasing and sales revenue is growing at a rapid rate every year, prices have continued to decline, resulting in long-term low profitability and even "struggling" near the critical point of profit and loss. This type of extensive investment with high input and low efficiency not only highlights the long-term existence of “low industrial concentration”, “overcapacity”, “unreasonable product structure”, “high energy consumption and high pollution”, etc. in China’s steel industry. "Hard disease," but also reflects the transformation and upgrading of China's iron and steel industry, the cultivation of new profit growth point imperative history.

In fact, the cost difference determines the profitability of steel companies. Overcapacity is not the only factor that determines the low profit of the industry and the company. Steel industry as a highly homogeneous industry, in the context of product convergence, the profitability of the single enterprise depends on the difference between the cost of the enterprise and the marginal cost of the industry. If the difference is large enough, the low-cost enterprise can still obtain high profits. .

Qi Hui Securities Steel analyst Hui Hui told China Union Business Daily that the market game rules determine the competitive operation mode of the enterprises under the system. In the market competition, different game rules determine the balance of victory and defeat. Judging from the situation in recent years, after the iron and steel industry became oversupply in 2005, depending on the cost difference between the internal and external pricing systems of iron ore, large state-owned enterprises obtained excessive profits in the following three years. Since the index pricing of ore in 2010, the market game rules have been completely broken. Under the unified raw material cost, the same private enterprises rely on the cost difference between internal and external operational efficiency to obtain higher profits, and the profit per ton of steel even exceeds the pre-crisis level.

Although the production and withdrawal of profit-and-loss-driven capacity under the market economy has resulted in a formal production cycle. In the second quarter of this year, the steel industry experienced a phased capacity shortage under the superposition of exports and peak seasons. From this phenomenon, it seems that the industry has come to light.

However, in Hui Hui’s view, the cycle of Chinese steel production capacity is not obvious because it is not an effective area for full market allocation of resources. On the one hand, inefficient state-owned production capacity cannot withdraw from the market due to institutional support; on the other hand, high-efficiency private enterprises are currently highly profitable. Stimuli continued to expand, in addition to the country's elimination and merger policies objectively forced private steel plants to overweight. “Our statistics show that there are still about 150 million tons of capacity under construction and planning in the next three years,” said Hui Hui.