China steel industry might see high cost and low profit in a long time.

On one side, production excess of steel industry lingers on. On the other side, crude steel production constantly hit record highs. Crude steel production hit new highs in early March and early April of this year. Daily crude steel production of China averaged at a record high of 2.132 million tonne in the Q1 of 2013. It is reported that the regulation policy is ready to come out.

Production overcapacity settlement remains a daunting task Production overcapacity becomes an inevitable topic of steel industry. It is reported that relevant department is making comments on capacity excess of multiple industries including steel and cement industry. In the future, additions of overcapacity industries will be strictly controlled while illegal construction projects will be cracked down.

New capacity is concentrated in West China in the past few years, most of which are advanced technical seamless steel pipe tubeequipments. At the same time, the pace of obsolete capacity elimination is slow, said that an insider.

The nation is resolute on overcapacity control since this year. The problem of pollution is severe at present and steel industry should further strengthen environmental management to resolve overcapacity, which hence promotes fair competition amid steelmakers, said that Mr Li Xinchuang, Deputy Secretary General of China Iron and Steel Association.

Most insiders are optimistic about steel industry in the first half of 2013 due to the opportunities brought by new urbanization. However, steel mills slow the pace of raising ex works price under oversupply. Ansteel and Wuhan Steel seamless steel pipe tubecut down steel ex works prices for a long time while Baosteel recently announced to reduce steel prices for June, the first time within 9 months.

The priority is to carry out strict market access to solve overcapacity, said that Miao Wei, Minister of the Ministry of Industry and Information Technology.

However, the task is more and more difficult and it might be the most efficient way that relevent enterprises are forced to cut production or shut down relying on market power.

Profitability of steel industry is worrying 28 listed steel enterprises saw a drastic drop in profit last year with a net loss of CNY 8 billion yuan, of which, 17 had profit and 11 suffered losses. Steel industry saw decline in annual revenueseamless steel pipe tube for the first time in recent 4 years. China steel industry achieved a YoY decrease of 7% in revenue due to steel drop tumble despite a 2% increase in crude steel production. CISA’s members have realized pre tax profit of CNY 1.6 billion in the whole year of 2012, a decrease of 98.2% from a year earlier.

In the Q1 of this year, CISA’s members achieved sales revenue of CNY 875.8 billion a rise of 0.94% YoY, pretax profit of CNY 20.346 billion, increasing 30.24% from a year earlier; profit of CNY 2.486 billion turning into profit from loss. However, seamless steel pipe tubethey had profit of CNY 1.338 billion in January, CNY 998 million in February and CNY 267 million in March.

Source - www.steelhome.cn
China steel information centre and industry database

(www.steelguru.com)