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According to recent data from the China Iron and Steel Association, large and medium-sized steel companies experienced a loss of 5.528 billion yuan from January to September this year, compared to a profit of 83.692 billion yuan during the same period last year. Loss-making enterprises accounted for a staggering loss of 26.726 billion yuan, representing a year-on-year increase of 41.5 times. The loss ratio climbed to 45%, up 38.75 percentage points compared to the previous year.
However, the situation for steel companies seems to have improved since October. Wang Xiaoqi mentioned that after the iron ore price hit a low point in September, many steel companies took advantage of the opportunity to import substantial amounts of ore. Most of the contracts signed in September were executed in October, leading to a significant drop in iron ore prices—approximately RMB 120 per ton. Consequently, the production costs for these companies decreased. Meanwhile, the prices of steel products rose, increasing by around 150 yuan per ton compared to September. These fluctuations in costs and prices have helped steel companies achieve profitability in October.
Looking at the broader picture, data from the first nine months reveals that major steel mills have been consciously reducing production. From January to September, member steel enterprises under the China Iron and Steel Association cumulatively produced 439,506,100 tons of steel, a decrease of 9.1847 million tons compared to the same period last year, representing a decline of 2.04%. Since July, member steel companies have implemented output reduction and maintenance measures to curb production levels. Monthly production figures for July, August, and September showed a gradual decline, with a 8.39% drop in September compared to June. Non-member companies, however, continued to ramp up their production levels.
In terms of demand, China’s apparent crude steel consumption from January to September this year reached 5102.761 million tons, increasing by only 3,302,600 tons, or a mere 0.65% year-on-year—a decrease of 9.73 percentage points compared to the same period last year. The steel industry has been facing challenges, with railway construction investment and real estate (new starts) development investment showing negative growth. The shipbuilding industry also saw significant drops in completions, new orders, and hand-held orders. Weak demand in sectors such as machinery, automobiles, and home appliances further contributed to the sluggishness in the steel market.
Despite this, the China Steel Association predicts a potential improvement in steel product demand in the fourth quarter. With the National Development and Reform Commission approving 25 new urban rail transit projects and 13 highway projects in September, the number of newly started railway projects surged from 9 at the beginning of the year to 22, and investment in railway fixed assets rose from 516 billion yuan to 630 billion yuan. This surge in infrastructure investment is expected to drive a significant increase in fixed asset investment nationwide in the fourth quarter, leading to a rebound in steel market demand after the first three quarters and altering the weak demand scenario for steel products.
Wang Xiaoqi, Deputy Head of the China Iron and Steel Association, noted that steel companies might turn a profit in October, with potential for further gains in November and December. Overall, it's possible that the industry won't incur a loss for the entire year. However, the deep-rooted issues plaguing the development of China's steel industry remain unresolved. Excessive capacity in the steel sector and the control of iron ore by foreign entities, coupled with speculative activities by financial capital, continue to constrain the industry's growth. While the problem of overcapacity persists, the pressure on iron ore prices has eased somewhat. The downward trend in iron ore prices is now widely accepted in the industry. Domestic mines are accelerating their expansion efforts, with expectations of a 80 million to 1 trillion-ton increase in domestic iron ore production by 2016. Overseas equity mining investments are also expected to enhance iron ore supply.