Two Breakthroughs in China's Steel Industry Help Transformation and Upgrade

“Infrastructure and real estate downturn have led to a weak demand in the downstream steel market. Iron ore prices in the upper reaches have remained high. Iron and steel companies have been caught in the middle and their days have been hard.” This is the truest portrayal of the Chinese steel industry.

Three major problems in China's steel industry: high profitability, low losses, pollution Li Xinchuang, deputy secretary-general of the China Iron and Steel Association and director of the China Metallurgical Industry Planning Institute, believes: “The steel industry is still in a depressed state.” His judgments are mainly based on Four aspects. The steel industry has experienced an overall loss. According to statistics from the China Iron and Steel Association, in the first 10 months of 2012, China’s key large and medium-sized steel companies suffered a total operating loss of 5.2 billion yuan, compared with the profit of 84.9 billion yuan in the same period of last year, and the absolute value was a difference of 90.1 billion yuan. The market performance is weak. According to the statistics of the (Iron & Steel) Association, from January to November 2012, the output of steel increased by only 2.9% year-on-year, and the growth rate was down by 6 percentage points from the same period of 2011. Behind the sharp drop in the growth rate of steel production is the decrease in market demand, which is affected by the downstream industries. The most fundamental reason is the macroeconomic recession. The tight funding of iron and steel enterprises, the high cost of ** and ** directly led to a substantial increase in the financial expenses of steel companies. The upstream tax burden on metallurgical and mineral enterprises is too heavy, as high as 25%. This kind of cost will be passed directly to the downstream steel industry. Enterprises are unbearable and affect the development of the company. Raw materials such as iron ore have remained high, and steel prices have dropped sharply and are not stable. Due to rising prices, Chinese steel companies spent more than US$300 billion in importing iron ore from 2003 to 2011.

Reducing pollution emissions and eliminating excess capacity With the rapid growth in China's steel production, overcapacity has become a major problem that has plagued the industry. At the same time, overcapacity and ecological civilization construction are extremely inconsistent, and environmental protection should become a catalyst for overcapacity. According to statistics, in 2010, the emissions of carbon dioxide*, nitrogen oxides, soot and dust in the steel industry accounted for 9.5%, 6.3%, 9.3% and 20.7% of the industrial emissions, respectively. At the same time, China is still the world’s first producer and exporter of coke. Not only does it have a large amount of resources consumed, but also toxic and hazardous substances that are emitted during the production process pose a serious threat to human health. In June 2012, the Ministry of Environmental Protection reviewed and adopted in principle the “Emission Standards for Pollutants for Mining of Iron ore”, “Emission Standard of Air Pollutants for Iron and Steel Sintering, Pellet Industry”, “Emission Standard of Air Pollutants for Ironmaking Industry”, and “Atmosphere of Steelmaking Industry Emission standards for pollutants, such as "Emission Standard for Air Pollutants in Rolling Industry", "Ferroalloy Industry Pollutant Discharge Standard", "Iron and Steel Industry Water Pollutant Discharge Standard", "Coking Chemical Industry Pollutant Discharge Standard," and other eight pollutant discharge standards.

According to the monthly national air quality report of the Ministry of Environmental Protection in May 2013, the air quality of only 74 percent of the 74 cities in May was up to the standard, which was lower than that in April, and the number of days in the Beijing-Tianjin-Hebei region fell from 50.6% in April to 27.4%. The number of standard days in Beijing has also dropped from 62.1% in April to 25.8%. In May, the Beijing-Tianjin-Hebei region was still the only region below the national average compliance rate, which was 32.7 percentage points lower. In the Beijing-Tianjin-Hebei region, only 27.4% of the days had air quality standards.

Resolving overcapacity is a painful process. We must solve the problem of resettlement of employees. Luo Baihui, chief researcher of Jinmo Steel, believes that China can learn from Japan's experience. Japan's Nippon Steel Corporation had 25 blast furnaces when it was established. Later, through a reduction in reorganization, optimization and upgrading, a large number of equipment was shut down. Now there are only 9 blast furnaces. The Nippon Steel approach is to train employees and all management must assume responsibility for recommending work for employees. In addition, after shutting down the equipment, the problem of the effective use of idle land must be solved. Nippon Steel carried out a recycling cycle project on the idle land of Yasaka Iron Works to provide energy for the society. From this point of view, optimizing production capacity and energy saving and emission reduction are not inconsistent and can be achieved through hard work. We need to pay attention to the problem of overcapacity. The EU has spent 20 years. China must make lasting preparations. On the one hand, mergers and reorganizations of enterprises take time. On the other hand, the state needs to adjust relevant policies. time.

Iron and steel companies are beginning to seek the impact of the supply and price of iron ore for transformation on the Chinese steel industry. The passive loss of the steel industry is largely due to the monopoly of iron ore. According to Zhang Tieshan, a researcher at China's steel company president's school, the most important factor affecting the steel industry is whether or not raw materials are stably supplied, and prices are secondary. “Since 2004, the price of iron ore has risen year after year. The rate of iron ore is very large, but the steel mills have also benefited greatly. Another factor is the stable downstream demand, which is the order.” In the short term, due to the total demand of China Without falling, the high price fluctuations of iron ore will not change; in the long run, the price of iron ore will certainly drop. The large increase in iron ore demand has brought about many investment opportunities. In the past few years, the rapid growth of mineral investment funds and the trend of increasing iron ore production have been formed. According to the Ministry of Industry and Information Technology, China imported 620 million tons of iron ore in 2010, and iron ore has an external dependency of 63%. During the year, as the price of iron ore rose by 61%, the cost of imported iron ore by Chinese steel companies increased by 196 billion yuan in the year, and the overall status of iron and steel enterprises was high-cost and low-efficiency.

With the approval of the listing of government bonds, the domestic market for crude oil and iron ore in the domestic commodity market has also been rising. According to the report of Jinmo Steel, the Dalian Commodity Exchange for preparation of iron ore** has submitted a listing application to the China Securities Regulatory Commission. If everything goes well, it may be listed in 2013. The iron ore ** contract disclosed by the Dalian Commodity Exchange shows that the contract is intended to use iron ore fines with a 62% iron content as the subject of trading and implement physical delivery to allow iron ore fines to be used instead of deliveries. Compared with other countries that have launched iron ore**, the biggest bright spot for China's iron ore** is to have the conditions for physical delivery. With the gradual transfer of iron ore to the buyer’s market, coupled with the development and expansion of the domestic iron ore spot trading platform, and the introduction of iron ore by the Dalian Commodity Exchange, China is expected to have more in terms of iron ore pricing in the future. Much right to speak.

In the face of a cruel market, steel companies have begun to seek transformation. In 2012, Wuhan Iron & Steel announced that it will invest 39 billion yuan in the development of non-steel industries, including raising pigs and growing vegetables. Prior to this, Baosteel has also put more energy into the field of steel construction. Now all steel companies are trying to find a way, but steel companies are heavy asset companies. Adjustments are very difficult. They can be adjusted from heavy industry to light industry, or from smelting to processing. Each company has its own ideas, but There must be a process. Liu Zhenjiang, vice president of China Iron and Steel Industry Association, pointed out that in the era of meager profits, companies should make clear their own market positioning, make strategic adjustments, promote sustainable development, and increase market competitiveness.

Statistics from the National Bureau of Statistics show that in the first half of the year, China's fixed asset investment (excluding rural households) was 18.13 trillion yuan, a nominal increase of 20.1% year-on-year, and the growth rate was 0.8 percentage point lower than the first quarter. From the data point of view, investment in fixed assets has entered an inertial downward channel, and the investment in fixed assets has not been driven. From the perspective of manufacturing investment, due to overcapacity in some industries, in the first half of the year, manufacturing investment was 632.57 billion yuan, an increase of only 17.1%. The decline in the rate of return on investment in manufacturing and the sluggish export situation in the second quarter have led to sluggish investment in manufacturing and there is still limited room for improvement in the future. In addition, in the first half of the year, infrastructure investment played a leading role in the growth of fixed asset investment. However, follow-up projects and funding sources have caused further growth in infrastructure investment to be uncertain.

In July, the initial value of HSBC China's manufacturing PMI fell to 47.7%, a record low in nearly 11 months. Luo Baihui, chief researcher of Jinmo Steel, analyzed that the weakness of the manufacturing industry will continue at the beginning of the third quarter, and external demand will remain weak. New orders for domestic demand will continue to decline, with high inventory levels and weak demand. From the analysis of major steel industries, the growth of downstream demand will continue to be weak during the second half of the year: Since the second quarter, real estate investment growth has been declining month by month. Although the area of ​​new residential housing starts to grow, the area of ​​land acquisition for real estate companies has fallen. 10.4% At the same time, real estate tax will expand the scope of the pilot and other policies are expected to affect the real estate investment in the second half is still full of variables; shipbuilding industry, the total industrial output value, economic efficiency, ship exports have declined, the production and operation situation is very grim; machine tool New orders from key industry-linked companies have been negative for 22 consecutive months, and domestic construction machinery companies are still adjusting. The energy-saving subsidy policy of the household appliance industry ended on June 1 and the sales are cold, and the demand for steel for home appliances is lacking in the future. Power; Under the pressure of environmental protection, places will gradually introduce restrictions on purchases and restrictions, and automobile retail sales will not show super-high growth.

Since the beginning of this year, the recovery of the world economy has been slow, and investigations into trade remedies against China have shown signs of growth. Steel products have not been spared. In June, China exported 5.29 million tons of steel, a decrease of 120,000 tons. From the export trend, in May and June, China's steel exports showed a declining trend, coupled with the impact of exchange rates and other factors, it is expected that in the second half of the year, the difficulty of exporting steel products in China will further increase.

However, Luo Baihui pointed out that a series of policy measures have been introduced in the area of ​​“stabilizing growth” in the near future, including the transformation of shanty towns, trade facilitation, and reform of the railway investment system. The implementation of these policies will help ease the contradiction between supply and demand of steel.

In the country within five years, 10 million shantytowns have been reconstructed. From the perspective of the places where planning has been put forward, the transformation of shanty towns has played a more prominent role in the relevant industries. For example, the Beijing Municipal Housing and Construction Commission decided that it plans to invest more than 500 billion yuan in shantytowns in the next five years; Hubei Province will transform 800,000 shantytowns, with an estimated investment of more than 210 billion yuan.

Luo Baihui believes that steel demand for railways is an area that the steel industry will focus on this year. However, under the influence of funds, the railway in the first half of the year only completed 33.22% of the annual fixed asset investment quota. In the future, through the reform of the railway investment system, the railway construction market will be fully opened, railways and related facilities in the central and western regions and poverty-stricken areas will be given priority, and construction funds will be raised in multiple ways and through multiple channels. The central government will use the funds as a guide to attract social capital.

Since the beginning of this year, the State Council has successively cancelled and decentralized management-level administrative examination and approval projects, which involve companies investing in the expansion of civil airport project approvals and enterprises investing in urban rail transit vehicle project approvals and other traditional monopoly industries. Similar decentralization of approval authority for large investment projects can effectively mobilize the enthusiasm of different investment entities.

In addition, China's industrialization has not yet been completed, and new urbanization is steadily advancing. It is still the world's largest steel consumer market in the next few years.

Two "Breakthroughs" Assisting in Transformation and Upgrading "China's steel industry should break the contradiction of overcapacity and air pollution prevention and control as a breakthrough, accelerate the pace of structural adjustment, transformation and upgrading." Zhu Hong Ren said recently. He disclosed that the Ministry of Industry and Information Technology will work with relevant departments to formulate and implement overall plans to resolve the contradictions of overcapacity and related comprehensive policies and measures. According to media reports, the plan has been reported to the State Council.

First of all, it is imminent to resolve excess production capacity. Inconsistent with the lack of demand growth, China's steel production maintained a sustained growth trend in the first half of the year. According to the latest statistics from the National Bureau of Statistics, in the first half of the year, the output of pig iron, crude steel and steel in China were 357.54 million tons, 388.7 million tons and 516.96 million tons, respectively, an increase of 5.7%, 7.4% and 10.2% respectively. The oversupply of steel in the market caused the overall steel price to be in a downtrend, and the profitability of the company deteriorated. According to statistics from the China Iron and Steel Association, in the first five months, profits of large and medium-sized steel companies in China fell month by month, with a loss of 690 million yuan in June, and the loss increased to 43%, an increase of 8 percentage points year-on-year. From the list of 17 listed steel companies that have issued interim announcements, the performance of three companies has been reduced, with one company leading the deficit and six companies continuing to lose. The companies with pre-declining performance accounted for nearly 60%; only four companies forecast pre-performance forecasts. Increase, 3 home losses.

Second, the environmental upgrade is imperative. Judging from the “Aluminum Industry Specification Conditions” issued by the Ministry of Industry and Information Technology, a significant increase in energy consumption and environmental protection standards will become an important starting point for industry governance. Zhou Shengxian, Minister of Environmental Protection, said at a meeting a few days ago that the "Air Pollution Prevention Action Plan" (hereinafter referred to as the "Action Plan") will be released by the end of July or early August. The Action Plan divides the country into key regions and non-key regions, and sets different PM2.5 control targets for different regions such as the Beijing-Tianjin-Hebei Region, the Yangtze River Delta, and the Pearl River Delta. The Beijing-Tianjin-Hebei region has the most stringent targets. According to reports, the plan is more stringent than the "Twelfth Five-Year Plan" for the prevention and control of atmospheric pollution in key regions. The increasingly stringent environmental standards have brought pressure on the steel industry. However, Baosteel, Hebei Iron and Steel Group Tang Gang, Tai Steel and other domestic steel industry environmental protection "model" practice has proved that: We can completely build the steel industry into a green industry.

On the whole, in the second half of the year, the state must come up with "real actions." In this regard, the steel industry must pay great attention and actively participate in this process.

From the corporate level, iron and steel companies must pay close attention to cash flow, debt repayment ability and other financial conditions, and use funds more to upgrade products, save energy and protect the environment, and enhance the competitiveness of enterprises; pay more attention to the needs of downstream steel users. The transformation and upgrading will increase the market competitiveness of the products and the profitability of the enterprises; they must carefully study the market development trends, organize production according to market demand and order status, conscientiously safeguard a healthy market order, and avoid low-cost vicious competition.