Through 68 years development, steel industry in China has drawn the attention of the world, and has done indelible and great contribution to our economic society development, and plays an important role in the world steel industry. Development prospect of Chinese steel industry is still broad, especially in the new period of improving quality.
I. Irresistible industrial development of steel in China
From the view on important node in steel industry, after breaking through 100 million tons of steel output in China in 1996, through seven years, breaking through 200 million tons in 2003. After that, the development is even more powerful. Step on one hundred million step nearly every one to three years between 2003 and 2014, and steel output without deduction of repeated steel still steady grew at the end of 2016, it seems that there was no “peak value”worry and also no decrement state. Besides, continued increase of steel output this year has been a foregone conclusion. Convincing argument sees that the giant potential of Chinese economic society development to demand for iron and steel and prospect of Chinese steel industry sustainable development.
It is more to make a contribution that GDP tendency in China is along with crude steel and steel production for a long time, average speed of growth of rolled steel only has a difference of 0.8% with the average speed of growth of GDP for 21 years, which shows an intimate degree. It is enough to indicate that development speed of steel industry and great-leap-forward development of economic society are fairly suitable, which is not only greatly meet demand for rolled steel in China, but also makes contribution to co-ordination of supply and demand of worldwide Iron and steel and economic development.
It is history as a card, quantity development of steel industry in China and improvement of quality are far from completion, exceeded unscramble or assume original insufficient data, mixing relationship of capacity and output and their connotations, would be biased, and the history has proved and will continue to verify that the development of Chinese steel industry will advance irresistibly.
II. Importance work of improving quality of steel industry
It is always said that progress of improving concentration of steel industry is always not smooth! Steel Industry The 12th Five-Year Plan asked that concentration of the top ten steel enterprises before the end of The 12th Five will be enhanced to 60%, which is not only be achieved , but the actual concentration has decreased on the contrary. Therefore, Steel industry adjustment upgrade plan (2016-2020) confirms that concentration of steel industry will be enhanced to 60%, but it cannot be achieved to the vision so far. The State Council About Guidance Opinions on carrying forward steel industry merging and reorganization And disposing zombie enterprises indicates that 60%-70% of steel capacity in Chinese steel industry will focus on about 10 large groups up to 2025, which may depend on actual situation. Because from 2005 to 2016, nearly every several years, there are reshuffle or resolution of some enterprises; relatively successful steel mills are HBIS Group, Shandong Iron & Steel Group, Valin Group, Bao steel etc; relatively zigzag steel mills are Ansteel Group, from Ansteel Group to Anben Group, being back to Ansteel Group again; Liuzhou Steel belonging to Wuhan Steel, combined and quitted again; Bohai Steel Group which was composited of four state-owned enterprises in Tianjin in 2010, founded only for only three years and all broke up and recovered their names or alias again etc, which quitted or disassembled after recombination and produced a certain negative effects on improving industry concentration. Seeing nature through the appearance, hindering the principal contradiction of Chinese consolidation and reorganization of steel enterprises, which is the difference of forms of ownership and its derived system and mechanism problem. It turns out that even if all of them belonging to the state-owned assets, central enterprises and state-owned enterprise, reorganization between state-owned enterprise and state-owned enterprise is rather difficult, state-owned enterprise and private enterprise are more difficult, after all there is many intricate interest relationship, becoming obstacle and fetter of reorganization.
The data shows that crude steel output of top four steel enterprises in 2016 was accounting for 21.67% all over the country, dropped by 0.01% compared with 2015. The top ten steel enterprises accounting for 35.87%, up by 1.67% compared with 2015. Divided by the same caliber output scale, ≥30,000 thousand tons, 20,000-30,000 thousand tons, 10,000-20,000 thousand tons, the households of enterprises is in the same line with the last year. Enterprises of scale of 5,000-10,000 thousand tons had only 14 households, increased by 2 households compared with 2015. Scale and classification can show that there were less enterprises of scale over 20,000 thousand tons and had five households only accounting for 5.8% of the total households. However, enterprises of scale below 5,000 thousand tons accounted for 59.3% of the total households. Thus it can be seen, industrial distribution is unreasonable and too low industry concentration problem still stand out, improvement and enhancement of work is still a long way shouldering heavy responsibilities to go.
From the condition of concentration of steel industry of main steel-producing countries all over the world: in 2003, steel output of Arcelor accounted for 21% of all European steel output, steel output of Nippon Steel and JFE accounted for 56% all over Japan; steel output of Pohang accounted for 64% all over Korea; in 2007, output of four steel enterprises in European Union was 159 million tons, equaling to 90.73% of the overall output of EU 15 countries; output of the top four steel enterprises in USA accounted for 52.9% of the overall output all over the country; the top four countries in Japan accounted for 74.77%; the top three steel enterprises in Pohang, Korea accounted for 88.93%.
The above facts indicate that it is nearly impossible to improve concentration of Chinese steel industry only depending on marketization and it is a long way off depending on combining marketization dominated by government! Only god's belonging to god, caesar's belonging to Caesar. Reorganization among state-owned enterprises need to be completed by governmental government decree (solving person’s problem by organizational measure and g interests distribution by finance and taxation measures; solving complication problem by social security). Merging and reorganization among private enterprises can be oriented by the market and supported by government. Mixing ownership merging and reorganization, there is rare completed successful example for now. It is made to be known to the world, Ansteel merged Panzhihua steel (central enterprise and central enterprise), Baosteel merged Wuhan Steel (central enterprise and central enterprise) and HBIS Group(state-owned enterprise and state-owned enterprise), Shandong Iron & Steel Group (state-owned enterprise and state-owned enterprise), Shagang Group ( private enterprise and private enterprise) etc, all of them are typical cases.
It is believed that solving principal contradiction, problems, obstacles and puzzles that affect on concentration of steel industry, making solid progress of sufficient consolidation of enterprise sources after reorganization, making more enterprises reorganization be able to translate into substantive reorganization, promoting reasonable and structure optimized organization structure of steel industrial distribution, are prerequisite and important work when Chinese steel industry enters into development new period of upgrading quality.
2. Improve profitability
For a long period, profitability level in steel industry is always at the bottom of Chinese manufacturing industry, 0%-2% income profit margin, far below the national average level of about 6%. It is identified that the profitability of steel enterprises in China is relatively weak, and anti-risk capability is not strong, objective exists “having no choice but depending on heaven for food”, which means that market is ok and the steel price rises, then makes money and profit, and the market is bad, price of steel dropped, then loses money and profit. This nightmare is difficult to be avoided by familiar and excellent enterprises. In 2015, the first loss has appeared in the whole industry over the latest 24 years, great loss of 64.5 billion made the court and the commonalty shock, resulting in recalling a painful experience and processing a high pressure purge to excess capacity beyond example. In 2016, although there was a 30.4 billion profit, it was a low-level, and the average rate of profit in the industry only had 1.08%, even if it is estimated that there will be about a profit of 90 billion in 2017, and the industry profit is only a level of about 3.4%, which is still far below the average level 6.1% of Chinese manufacturing industry.
From the annual list of the latest “steel enterprise of the global most competitive enterprises” released by WSD (World Steel Dynamic), POSCO gained the first place again, which is the eighth year in succession to gain this honor of the company since 2010. However, our first-class steel enterprise-Baosteel, is selected for the global top 10 and becomes the tenth this year. From the domestic overview, profit of private enterprise forever outclasses state-owned’s; great loss in 2015 in the whole industry, Baosteel only had a 1.1% of profit rate, thus market competitiveness of Chinese steel enterprises is not strong and anti-risk capability is relatively weak.
From the deep reason, relatively low of profitability of Chinese steel enterprises cannot be solved completely in an immediate time, it must be designed from the top, namely, from the system or mechanism, through management within the law and industries upgrade, can constantly improve enterprises’comprehensive strength and competitiveness, further improve the profitability. Thus improving the management level and anti-risk ability of Chinese steel enterprises is a very important work when Chinese steel industry enters into a quality upgrade new period.
3. Improve deep processing level
Deep processing of rolled steel is an importance part of steel industry chain, and as an important sally port of , serving for users, adjusting structure, carrying out relevant multielement strategy, changing increase manner, and seeking new increase space, has already been agreed by many enterprises. In fact, building steel large country, at the same time, pace of strengthening China’s steel industry, especially since 11st Five, Chinese steel products structure is further optimized and quality of products is continued to improve. Degree of self-sufficiency of variety of steels had achieved to 99.6% in 2013, quality of part innovative product had even achieved to or lead the level in the world, development of key rolling shapes needed by national economy also had made repaid progress. The high strength steel plate for building, the high strength reinforced bar for seismic building, steel for high strength automotive, A –class steel for home appliance, nickel –saving or nickel-free ferrite and duplex stainless steel,T4003 stainless steel, alloy material spacecraft for spacecraft, high performance pipeline steel, steel for large-scale hydropower station, high magnetic induction oriented silicon steel, steel rail for high speed railway and other high-performance steel materials, have supported the development of relevant industries, ensured smooth implementation of national major key project and key projects. So, from the view of deep processing order of material type, marketing type and industrial type, for several decades years, deep processing of material type in China could be synchronization with development of output basically, preferably met the demand for varieties of steel by economic and social development. However, we still have much to improve on the marketing type and industrial deep processing, like marketing deep processing, although part enterprises can provide the final user to direct use through the logistics system such as corrective, clean, shear, stamping, color printing and other processes, and through warehousing, transportation. Since most of the steel companies are now from their own interests, not only the marketing type of deep processing is difficult to form the scale effect, but the bad market can easily lead to vicious competition.
On the deep processing of industry-type deep processing, China was basically on the phase opportunity investment. Because long-term real estate economic background, the most fields steel companies involved in industrial deep processing are construction steel structure, metal packaging, fasteners, hardware furniture, auto parts, steel cord, bridge cable etc. Besides, make a general survey of these fields, most of them are low-scale, low technical grade, bad marketing ability, large fluctuation of profit and loss, industry influence and weak market control ability etc, such as steel structure, which was involved by Shougang Group, Ansteel, Masteel and Laigang, but most of them are small scale operation, attached development, lacking strategic development plan and investment intensity forming independent survival, not only cannot strongly support the technology and market to the main business, even could not gain stable economic income. Opportunity investment also performs on investment purpose of dislocation and waver , including non-economic purpose of pursing short, adaptable and fast economic income, and solving staff employment, which showed excess fickleness and seeking quick success and instant benefits, belonging to classic opportunity investment.
Opening our eyes to the whole world, nearly all steel companies participated in downstream deep processing business integration. From the view of scale, getting involved in the rolled steel deep processing, the deepest is thyssenkrupp company, whose auto parts and elevator exceeded steel sales amount, and became an independent development industry. And deep processing of most of steel companies, relatively speaking, is also a synergic business of steel main business. From the view of level, deep processing developed by most steel companies belongs to the first level, and the second level, namely, material deep processing and marketing deep processing, and there is more joint stock in industrial deep processing. The data displays that as early as 2010, proportion of structural steel construction of developed country reached to 30%-40%, but the proportion in China does not reach to 8%. Bridge proportion of road steel structure is 20%-30%, the proportion in China does not reach to 1%. Steel structure bridge proportions in France, Japan and America are even higher, and are 85%、41% and 35% respectively, making Chinese steel industry blush with shame.
So steel product deep processing is both an inevitable product that developed a certain phase, and an objective demand that complies with industry chain extension expansion and endotaxy growing, even is the enterprise changing the growing manner, a process from quantitative change to qualitative change. So, continually improve the level of deep process (including product service) of steel industry in China is an important task when Chinese steel industry enters in a new period of development of upgrading quality.
Therefore, the above three items are priority among priorities in a new period of development of upgrading quality. What is called “Unending development, and ceaseless fighting!”. It is believed that Chinese steel industry must achieve qualitative leap with every aspects of support of long term endeavor of steel industry.
III. Outlook of the following steel market
1. Three characteristics of market in the earlier stage
1) Large growth of supply and demand of rolled steel
In the first half year of 2017, nationwide output of crude steel was 420 million tons, up by 4.6% Y-on-Y, averagely daily produced crude steel was 2,319,100 tons, and annual output was 840 million tons, including daily output of 2,441,000 in June, hit a new record high, and annual output was about 890 million tons; from January to June, output of rolled steel was 552 million tons, up by 1.1% Y-on-Y; import of rolled steel was 6.8 million tons, up by 5.3%Y-on-Y; export of rolled steel was 40.99 million tons, down by 28% Y-on-Y; apparent consumption of rolled steel was 368 million tons (deducting repeated material), up by 7.68% Y-on-Y, and increased the consumption 26.27 million tons.
From the above data, it seems that chains of serious supply exceeding demand that suppressing steel industry has already not existed yet, during the period of hitting a record high of output in June, part varieties of rolled steel, even appearing in condition of stockout and tense supply, directly driving growing with each passing day of steel output. Meanwhile, both production and marketing thriving, reflecting two major information: one is output of crude steel and rolled steel of the first half year of 2017, and apparent consumption calculated by any manner has hit a record high, definitely highlighting development prospect in Chinese steel industry, and demand for steel in economic society is hard to appraised; the another is effect of removing steel excess capacity and hitting the ground steel, compelling the underground real demand emerge from the water. If coupled with 16,130,000 steel that sold at home transferred from export, and appearing indistinctly supply falling short of demand and being close to excited steel market, directly make persons who benefit from steel highly praise the iron hand governance capacity of the central government’s “Practicing what you preach and must not stop one's action until success”.
2) Steel price rises sharply
Central government’s structural reform, remove of excess capacity, hitting Ditiao steel, environmental protection and inspection, alleviating burdens and reducing taxes, creating a good operation atmosphere to the development of Chinese steel industry, and bringing bull to Chinese steel market, coupled with tactics league of speculative fund from stock market and real estate, prompting the impulse type rise of steel price of steel this year, price of deformed steel bar repeatedly hit a new high from 2016、2015、2014、2013, splendidly performed the grand steel bull! Furthermore, fire storm in steel market also drove chain and general rise of its staple commodity, part relevant products even appeared in successive rise, showing high quality, high inventory, high price and increasingly high features in bull market. It is manifested that central government supply side reform and the whole economic order, and the remarkable effect of innovation and development.
The great improvement of industry profit greatly improved the profit level of the industry. According to the data of State Statistics Bureau, the accumulative net profit of nationwide central enterprises of the first half year of 2017 reached net profit of RMB 535.32 billion Yuan, up by 18.6% Y-on-Y. Of which, total amount of profit of nationwide black metal smelting and calendar processing industry had grown 21 times Y-on-Y, meanwhile, steel plate of the stock market repeatedly hit a new record, and became the goal pursued by the fund. Data from CISA showed that, RMB 32.9 billion profit for the first four months this year had far exceeded the profit of RMB 30.4 billion over the past year, the total amount of profit of member of CISA was RMB 53.24 billion, grown 3.67 times Y-on-Y. According to the basic fundamentals, it is estimated that profit of steel industry will reach to about RMB 90 billion, and income profit rate of about 3.4%, both of which became the third high point of total profit and sales income of China steel industry for 25 years, and performing well in nearly whole industry will attract worldwide attention again.
Three characteristics in the market in the earlier stage was really inspired with enthusiasm but showed one problem to be settled urgently that real demand for steel of economic society development in China needs to be assessed again, which definite the development direction of china steel industry, making Chinese enterprises walk on the broader and broader road of improving quality.
2. Outlook on the following market
Outstanding performance in the earlier market gives many uncertainties to the following market, especially the long term bear market “sear”, let many insiders remain silent to the high quality, high price and high inventory, and down-to-earth policy support and demand drive, fund catalysis and typical bull market of when everybody adds fuel, the flames rise high. So, here briefly expounds basic view on the following market.
1) Steel market continues to be driven by good economical situation
For the first half of this year, GDP increased by 6.9%, kept 6.7% and the above for eight quarters in succession, it is expected that it should be no doubt that the whole year economic growth must be higher than 6.7%. From the view on M-on-M growth, GDP of this year has continued the Q-on-Q rally situation from each quarter of 2016, which fully indicated that Chinese economic growth has bid farewell to the fall after rise for many continuous years and will be stable in the stage of medium-high speed.
Therefore, growing speed of GDP of the third and fourth quarter will keep about 6.9%. Coupled with the positive factor of the 19th National Congress of the Communist Party of China, economical situation will be impossible to take place bear events in the second half year.
2) It will be expected the growth of steel demand and the following market will be continued to be good
For China steel market situation of the second half year, it is expected that investment of capital construction will continue to undertake the important engine of fixed asset and economic growth. According to the latest data from State Statistics Bureau, the national commercial activity index in construction industry in July 2017 rose to 62.5%, up by 1.1 % M-on-M, which is a high point for the past few years. Of which, index of new order is 56.0%, up by 0.6% compared to that of last month. Commercial activity of construction industry in July hit a new high, which means the investment of capital construction will keep at a high level for the second half year, even speed up, so ensure the whole fixed assets investment under the control. Especially, many basics fixed fund investment project successively enters into cement water and main body construction phase, which makes the construction industry index continue to rise and brings up the demand of steel for the second half year, especially the consumption of steel used for construction like deformed steel bar. For the second half year, Chinese construction commercial activity tends to be active, which also can be evidenced from the strong growth of various construction mechanical sales. According to the data published by China Machinery Industry Federation, a total of 75,069 excavators were sold for the first half year (including export), up by 100.5% Y-on-Y. The sales amount had exceeded that of 70,320 excavators over the whole last year. From the view on continued strong growth of sales of construction machine like excavator and bulldozer, we will see the coming of peak season of steel for construction after land leveling and foundation pit excavation peak season.
The demand for panel for the second half year is expected to be further improved. From January to June, the national investment in manufacturing industry was 8.6809 trillion, up by 5.5%, accelerated by 0.4% compared to that from January to May, the growth picks up again for continued two months. Meanwhile, PMI51.7% of June in manufacturing industry, rose to the second highest this year against the quarter, showing the resuscitative manufacturing industry. From the view on demand from downstream, considering the golden September and silver October and lower purchase tax before the end of this year, from the third quarter, the sales amount of cars is expected to rise. Household appliance sales and real estate sales generally exists lag period for nine months, real estate sales for the first half year was beyond the expectation and will drive the sales of home appliance for the second half year. Recovery of the downstream panel manufactural industry will drive the demand of panel.
Besides, the newest quarterly report of national PPP integrated information platform project library shows that up to the end of June, nationwide put in storage projects was 13,554, and accumulative investment amount of RMB 16,300 billion. Of which, the signed projects was 2,021, the investment amount was RMB 3,300 billion, the achieved rate continued to be enhanced to 34.2%. The relevant person of PPP showed that construction of Chinese PPP project has already driven to fast traffic lane. It is no doubt that gradual execution of PPP projects will increase the demand for steel.
So, the demand for steel for the second half year will not be decreased and the total amount will keep a certain growth and the demand in the following market is seen to be firm and optimistic.
3) Index prediction of main metallurgy
Total consumption quantity deducted 368 million repeated material of the second half year will be in line with that of the first half year. It is expected that the national steel consumption will be about at 740 million, up by about 2% Y-on-Y. Other main indexes are expected: annual production of crude steel will be 840 million tons, up by 3.9% Y-on-Y; Output of rolled steel will be 1.1 billion tons (does not deduct repeated material), down by 3.1% Y-on-Y; import of rolled steel will be 13.6 million tons, up by 3% Y-on-Y; export of rolled steel will be about 82 million, down by 24% Y-on-Y; output of iron ore will be about 1.27 billion tons, down by 0.6% Y-on-Y; import of iron ore will be about 1.05 billion tons, up by about 3%.
In conclusion, passion in steel market for the second half year may be inferior to that of the first half year, and pace of bully will also slow down. But the average price of rolled steel for the second half year may be higher than the first half year, a new high over the latest five years will be appeared in the second half year. It needs to be paid attention that many subjects has been weariness, and it will be much more possible that the vibration frequency in the following market will step down and price amplitude contraction will narrow. Therefore, futures operative difficulty may be increased, and spot goods even more needs composure. If there is no major bad news, we believe that this round of steel bull is far beyond finish, overcoming the difficulty and going ahead is the basic keynote in the following market.
- [Editor:Wang Linyan]