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China Steel Association: China's steel industry capacity will exceed 1 billion tons
The issue of overcapacity continues to weaken the steel industry's bargaining power and intensifies its operational challenges. According to Wang Xiaoqi, Vice President of the China Steel Association, this year’s annual production capacity might surpass 1 billion tons. He emphasized that overcapacity represents the core challenge facing the steel sector. During a recent industry operation conference held on the 14th, Wang highlighted that the current excess capacity far exceeds the limits of healthy competition, leading to diminished negotiating strength within the domestic steel industry. This imbalance has resulted in steelmakers being unable to pass on rising costs of upstream raw materials like iron ore to downstream markets, prompting fierce price competition and a race to the bottom.
China Steel Association investigations revealed that the steelmaking capacity at the end of last year stood at 970 million tons, with annual production likely exceeding 1 billion tons. If daily crude steel output reaches 1.93 million tons, this year's total production could reach approximately 720 million tons. Despite this, the capacity utilization rate remains at just 70%, indicating significant oversupply in the market. The adverse effects of overcapacity are evident in the "low steel prices" and "high ore prices," which have severely compressed industry profits. Wang noted that the steel price index dropped to its lowest point of 98 in early September, comparable to levels seen in April 1994. Meanwhile, the iron ore index hovers around 400 points, representing a quadrupling from the land-to-shore price in 1994, now valued between $110 and $115 per ton.
Wang expressed concern over the dominance of foreign suppliers in the iron ore market, despite some domestic countermeasures. He pointed out that major mining companies leverage their market position to push for price hikes, while speculative financial capital further destabilizes mineral prices. For instance, India's 63.5/63% powder ore futures CIF price surged past $120 per ton on the 13th, reaching $122-$124, marking a more than 40% increase from its lowest point. Conversely, the comprehensive steel price index on November 9 was 106.01 points, showing a minor 0.62-point increase from the previous month. Although steel prices have rebounded slightly in the past two months, they remain at historically low levels.
The blind expansion driven by overcapacity has exacerbated market imbalances and intensified cutthroat competition within the industry. Statistics from the China Iron and Steel Association show that from January to September, member steel enterprises produced 4,395,506 tons of steel, a year-on-year decrease of 1,814,700 tons (-2.04%). Since July, steel output from these enterprises has declined for three consecutive months, with September witnessing an 8.39% reduction compared to June. Meanwhile, non-member companies increased their steel output by 15.77 million tons year-on-year, a rise of 18.63%.
The dual issues of uncontrolled production and highly concentrated downstream sectors have further complicated matters. Downstream industries possess strong negotiation power, keeping steel prices stagnant while iron ore costs remain high. A senior executive from a Hebei-based steel company lamented to the Economic Information Daily about the industry's dire financial state. From January to September, large and medium-sized steel enterprises reported total sales revenue of 265.725 billion yuan, a year-on-year decline of 6.49%. Profits and taxes totaled 47.515 billion yuan, a year-on-year drop of 66.84%, resulting in a net loss of -55.28 billion yuan, compared to a profit of 83.692 billion yuan during the same period last year.
Looking ahead, Wang Xiaoqi anticipates some improvement in the steel market compared to the first three quarters. Lower-priced contracts signed in September have contributed to a slight increase in steel prices, rising from 102 points to 105 points in October. Preliminary estimates suggest that profit margins per ton of steel could improve by around 150 yuan. Additionally, recent government efforts to stabilize economic growth are expected to boost fixed asset investments in the fourth quarter, potentially driving a rebound in steel demand. However, given the significant gap between production capacity and demand, any price recovery may lead to the reactivation of previously shut-down facilities, worsening regional oversupply. While steel prices currently remain weak, sustaining their recovery trajectory will depend on future market dynamics and stability.