Analysis of the Overcapacity Structure of China's Steel in 2012

The principle of economics points out that when the balance between supply and demand is broken, there will be a serious deviation between price and value. Today, the plunge in prices caused by imbalances in supply and demand in the steel industry seems to reflect this principle. However, the saturation of the domestic market does not mean that there is no way out. At the same time that domestic steel companies are trying to destock, overseas steel traders are now carrying more and more orders to take the initiative.

Overcapacity, steel prices plummeting As the industry debated whether Baosteel Zhanjiang’s Zhanjiang project was “resting, deferring, or shutting down”, another disturbing news came from the market: As the steel market price fell, it was used as a plate leader. The company’s Baosteel will have to significantly lower its product prices from August. In addition, the demand for industries such as real estate, construction machinery, shipbuilding, automobiles, household appliances, and railways, which are in the downstream, has continued to slump. In addition, the steel industry has suffered a serious excess of production capacity. People even exclaimed: “The steel industry, which has been surviving hard since last year, has entered a pole. Cold period."

Among leading companies in the plate industry, Baosteel took the lead in pricing in August, and the medium plate remained unchanged, but the ton price of hot and cold coils was reduced by 260 yuan and 200 yuan respectively, and the steel mills are under pressure to reduce orders. In addition, the domestic hot-rolled spot market is also generally down, and the ton price in Beijing, Chongqing, Kunming and other places has fallen by over one hundred yuan per week. The recent arrival of new hot rolled resources has increased, but the shipping situation is still not optimistic, and the inventory of some businesses is rising. In addition, a number of steel mills such as Baosteel, Shagang and Hebei Iron & Steel have recently lowered their ex-factory prices, and the magnitude of the downward adjustment has also been an important factor in the declining steel prices.

"Baosteel mainly manufactures plates, but most of the manufacturing industries such as downstream automobiles, shipbuilding and machinery are in a downturn. Even if it is started now, I am afraid there will not be any market or benefit." Zhang Ling, a researcher at Lange Steel Research Center, told this reporter Said, "As Caofeidian of Shougang, we haven't made any money now."

On the one hand, steel prices have been falling steadily. On the other hand, the loss of steel companies has continued to increase. This year's mid-year performance forecast announced by steel enterprises has shown a slump. Except for Angang Steel Co., Ltd., which disclosed a loss of nearly 2 billion yuan in losses, Shougang and Linggang’s mid-year reports also pre-losed over 200 million yuan respectively. In addition, the first-half performance of Shagang and Wuhan Iron and Steel Corporation fell by more than 50%. According to the latest statistics, in the first five months of this year, large and medium-sized steel companies realized profits of only 2.533 billion yuan, a drop of 94.26%; losses of loss-making enterprises were 11.749 billion yuan, an increase of 27.38 times.

According to news from the China Steel News, in the first half of this year, the domestic steel industry was in a downturn, mainly due to the decline in domestic economic growth and the weak demand in the downstream industry. At the same time, the overcapacity of steel production has increased, raw material costs remain high, and inventory is being destocked. The slow and export situation is still severe, which restricts the healthy and steady development of the steel industry. Due to the sharp reduction in steel production in the fourth quarter of last year and the arrival of the traditional peak season after the Spring Festival, this year's steel prices have only risen slightly from mid-February to early April, and have since turned around again. As of now, steel prices have been at the lowest level this year.

Supply and demand imbalances, there are signs of adjusting production capacity that the rapid expansion of China's steel consumption and output is beginning to slow down. Experts predict that China's steel output will increase by 5.7% this year, which is basically the same as last year. This shows that China's steel demand growth has slowed down significantly, and China's steel demand has increased five-fold between 2000 and 2010. Some experts pointed out that China's steel demand and output have been close to the peak.

Despite weak demand, production capacity has increased. In addition, the current production capacity of the blast furnace under construction is approximately 100 million tons, including 9.2 million tons of iron-making capacity of Baosteel Zhanjiang Steel Base and 8.5 million tons of iron-making capacity of Wugang Fangchenggang Iron and Steel Base. If we count the 5 million tons of steel in the old district of Shougang Steel and 3 million tons of steel in the planned new area, and the Ansteel Ningde Steel and Iron and Steel Base under construction (constructing an annual output of 12 million tons of steel) and the Rizhao Iron and Steel boutique base (constructing an annual steel production of 8.5 million). t), then will add nearly 30 million tons of steel production capacity. According to Mysteel statistics, China had 63 new blast furnaces in 2011, adding a total of 85.59 million tons of ironmaking capacity. The scale of new ironmaking capacity this year is still huge. If major steel mills do not postpone the date of blast furnace operation, they are still expected to be around 80 million tons.

With such a large-scale imbalance in supply and demand, can steel companies achieve balance by controlling production capacity? To this, Zhang Lin pointed out that the so-called scaled reduction of production is not a common reduction in maintenance, but the shutdown of blast furnaces. “If the large blast furnace is shut down, it will be technically difficult and dangerous, so the general steel mills will not stop. It is not stopped. Therefore, now that production is reduced, it is generally stopped at the rolling material production line instead of the shutdown of the blast furnace. When the blast furnace at the source stopped, it was the steel company that really stopped production."

Of course, in order to adjust the product structure of the steel industry and strengthen energy conservation and emission reduction, the country has been pushing the steel industry to eliminate backward production capacity. This year, the Ministry of Industry and Information Technology plans to eliminate 10 million tons of backward iron-making capacity and 7.8 million tons of steelmaking capacity. However, according to incomplete statistics, there are 15 provinces, autonomous regions, and municipalities directly under the Central Government that have issued the target of eliminating outdated production capacity for the industrial sector in 2012, and cumulatively eliminate outdated ironmaking capacity of 19.59 million tons and steelmaking capacity of 13.768 million tons. Ministry of Industry and Information Technology issued the target mission. The above 15 regions include Hebei Province, Shanxi Province, Liaoning Province, Jiangsu Province, Shandong Province, and Hubei Province. For the whole year of 2011, the above 6 provinces have achieved a total of 380 million tons of pig iron production, accounting for 60% of the national total. It is expected that the elimination of outdated ironmaking capacity will exceed 20 million tons this year. In this way, it is expected that the actual ironmaking capacity will increase by 5,000 to 60 million tons this year.

In the first half of this year, the weakness of downstream demand and the weakness of steel prices have been hampering the enthusiasm of traders for keeping goods. The domestic steel industry has a high inventory, and the destocking process has been slow. According to the "My Steel Net" inventory survey, as of June 21, 2012, steel society stocks in the 26 major markets nationwide were 15.423 million tons, 1.11 million tons higher than the same period of last year. Although domestic steel stocks fell for 18 consecutive weeks, the decline in stocks was relatively low. From this year's peak, the current decline is only 18.8%, which is only a drop from the eight consecutive weeks of decline in 2010. In the previous week (June 29), the national steel society stocks ended declining, and they all rebounded. At the same time, according to data from the China Iron and Steel Association, at the end of June, the steel stocks of key large and medium-sized iron and steel enterprises were 12.15 million tons, which was a 5.6% increase compared to the previous period. The rebound of steel enterprises and social stocks further hit the steel market. As of July 5, the myspic steel comprehensive price index closed at 146.6 points, a decrease of 5.2% from the beginning of the year, reaching the lowest point of the year.

Selling tricks: steel markets, which are languishing in the downturn, continue to fall, steel prices have been declining, demand has been shrinking, and high stockpiles... Steel companies are helpless but are also rushing to accelerate the “destocking” process. Some steel companies To steel traders frequently "shows good."

Recently, many steel mills have frequently lowered the ex-factory price, and showed many preferential policies to the steel trade enterprises. Among them, some steel companies introduced a new policy: the premise of increasing the number of agents by 20%. The monthly rebate will be RMB 30/ton, and appropriate deductions will be made to the bank acceptance discount.

In addition, some individual steel mills have even introduced "preserving sales," as long as steel traders take goods from the steel mills, the price is not yet locked in, and they are settled after sales, and they promise to give steel traders certain "spreads" to ensure their profitability. No loss, change the risk brought to steel traders due to the "upside down" of prices. Some steel mills have implemented "undisciplined profits": factory prices have changed little, but the delivery period has been shortened from more than 20 days after the previous payment to less than 15 days.

Some steel mills held steel trade and business conferences, and expressed to steel trade companies that steel prices were adjusted again, and gave a series of preferential policies, including acceptance of discounted partial discounts, and agents’ increase in the amount of existing planned purchases. After the corresponding increase in rebates, let profit tilt to the steel agents.

Experts pointed out that the steel mills' allowances, non-liability, and not allowing the market to take stock will, to some extent, exacerbate the volatility of the steel market and will not be conducive to market stability. In particular, low-cost selling, value-preserving sales, etc., can indeed attract some steel traders to place orders with steel mills, but after this part of steel traders gets low-cost resources, and individual steel mills promise to “hold value”, according to sales volume. , to give the difference (agent fees or labor costs), "the first to get the goods to talk about the price", "after selling the difference," and from here, traders to obtain the steel mill spears for the two or thirty yuan "labor costs" Of course, I would like to sell more goods, sell them a little faster, and to ship more and ship faster, we must have low-cost promotions. "Anyway, I didn't lock prices with steel mills. The price difference, why not sell at a low price." As a result, you also cut prices and I also sell at low prices, suppressing the entire market price.

Overseas markets, exposed "unpopular"

The east is not bright in the west. While steel companies were unable to do anything due to the shrinking domestic market, the export market has exposed "unpopular." Relevant statistics show that in the first half of the year, China's export situation has gradually improved. In the first five months, it exported a total of 22.04 million tons of steel, an increase of 10.1% year-on-year. In May, 5.23 million tons of steel were exported, an increase of 9.26% from the same period of last year, which is the highest level since July 2010.

From the export perspective, China’s exports to the United States and Southeast Asia maintained growth, and exports to the European region continued to decline. From January to April this year, China exported 608,000 tons of steel to the United States, an increase of 36% year-on-year. During the same period, China’s steel exports to Thailand, Vietnam, Singapore, and Indonesia increased by 46%, 22%, 42%, and 44% respectively year-on-year.

As of May this year, the U.S. manufacturing industry has been in the expansion zone for 34 consecutive months, and the economy has gradually emerged from the bottom. However, in June, the U.S. manufacturing industry contracted and new demand fell sharply. The ISM Manufacturing Purchasing Managers Index (PMI) fell to 49.7 in June, down from 53.5 in May. At the same time, on June 20 this year, the Fed lowered its economic growth forecast for 2012. This year, GDP will increase by 1.9% to 2.4%, while the estimate given in April is an increase of 2.4% to 2.9%.