Since 2022, the steel market has taken a sharp turn, and the steel industry has also been greatly affected by the global economic situation. Steel companies are under enormous pressure. Steel prices plummeted, raw material costs soared, and steel companies' profits fell sharply from the highest price of 4,880 yuan per ton in 2022 to the lowest price of 3,300 yuan per ton in 2023, plummeting by 1,580 yuan per ton; Many steel companies have difficulties in operation and have been forced to lay off employees to save themselves, and the number of workers in the steel industry has plummeted by more than 120,000 in 13 months!
Weak domestic and foreign market demand, serious overcapacity of steel, high production and operation costs, known by industry insiders as the "three mountains" currently pressing on steel companies. The "three mountains" have driven the steel industry to the edge of a cliff.
The main factors affecting steel consumption are housing construction, infrastructure and machinery manufacturing, of which housing construction accounts for nearly half. Since last year, due to the continuous adjustment of real estate investment, construction and sales markets, the sales and profits of upstream steel enterprises have been greatly affected.
Overproduction is excess above the high, insufficient demand but insufficient at the economic low, and the huge contrast caused by the decline in steel prices is unbearable for many steel companies. According to statistics, as of the first half of 2023, the total assets of the 50 listed steel companies were 2.375885 billion yuan, the total liabilities were 1.328837 billion yuan, and the average asset-liability ratio was 49.12%, with an average year-on-year increase of 1.09%.
Among them, there are 8 steel companies with an asset-liability ratio between 60% and 70%, namely Liugang Shares, CITIC Special Steel, Guangguang Special Materials, Ma Steel Shares, Shougang Shares, Nangang Iron and Steel Shares, Yulong Shares and Baosteel Shares. There are 5 companies with an asset-liability ratio of more than 70%, namely 95.24% of *ST West Steel, 92.62% of Bayi Steel, 83.53% of Anyang Steel, 74.06% of Jiugang Hongxing, and 73.06% of HBIS.
On the one hand, many steel companies have lost money and reduced their staff, and on the other hand, they have built a large number of new steel mills.
Mainland China has recently seven steel projects ready to start construction:
1. Jiangsu Yonggang Group Steelmaking Plant No. 3 Expansion Project New First Steel;
2. Nippon Steel Group invested 10 billion yuan in the new steel project, including two 3,000 cubic meter blast furnaces;
3. Tangshan Donghua integration, reorganization, reduction, replacement transformation and upgrading project steelmaking workshop project started;
4. Shagang Yongxing Special Steel Anyang production capacity integration project started construction;
5. Xuzhou Jinhong Iron and Steel 130 tons green electric furnace project started;
6. Henan Jinhui Industrial Group project started construction on September 6;
7. Anshan Iron and Steel Group started construction of six new 100-ton converters.
This shows that under the current downturn in the entire international steel market, the mainland has accelerated the replacement and upgrading of steel enterprises, and a small number of enterprises with backward production capacity, serious pollution and low efficiency have been shut down and transferred.
At the same time, the state has increased support for large steel enterprises with advanced technology, energy conservation and environmental protection, good benefits and promising market prospects. Eliminate those backward production capacity that is not suitable for market demand, and add some steel companies with good market prospects.
The raw materials of steel are mainly iron ore and coke, although the mainland is the world's largest steel-producing country, but our iron ore has long relied on foreign imports. At the same time, it is also passive in terms of pricing mechanism, and the pricing power of iron ore is mainly in the hands of iron ore oligarchs such as Rio Tinto, Vale, and BHP Billiton. Their long-term iron ore pricing power in the international market has brought great uncertainty and high cost risks to the development of the mainland steel industry.
China is not without iron ore, China's iron ore is mainly poor iron ore with an iron content of about 30%, which needs to be processed before entering the blast furnace smelting. Moreover, the iron ore on the mainland is mainly hidden deep underground, which is difficult to exploit, the cost is high, and it is not competitive in the international market.
Mining iron ore in Australia is simple and extremely costly, that is, the grass on the surface of the mountain is cleared, and then the iron ore is dug up by excavators, transported to the train by conveyor belt, and then transported by train to the port, and transported by sea to China or India. The main cost is all the cost of transporting, mining and transporting iron ore plus only $19 per tonne, while selling to China costs $120 per tonne, and every ton of iron ore sold adds $100 to the Australian government's wealth.
Western Australia is Rio Tinto's main iron ore mining area, and the wealth here is the chosen place, and the stones on the ground can be bought for money. Rio Tinto is a supplier of high-quality iron ore to major steel mills in China and makes a lot of money from China every year. They often make every effort to fight price wars in China, survive extremely rich resources and high-grade iron ore, and the monopoly operation of capital predator Rio Tinto, they have been in a fearless position for a long time and have long occupied the price dominance. Chinese steel mills have great market dependence on Australian iron ore, Rio Tinto has thoroughly eaten our lack of iron-rich national conditions in China, and sat on the ground, so that we were once in the downside and suffered heavy losses.
At present, China's real estate is in a downward stage, languishing, which to some extent also accelerates the overcapacity of the mainland steel industry, making the steel industry worse.
China's steel industry has come to this point, we can't help but ask, what happened to the steel industry? What should we reflect on when the steel industry has come to this point?
In the industry's view, the steel industry is in such a predicament, mainly to pay for the disorderly expansion in the early stage. As a highly cyclical industry, the cyclical boom and bust of the steel industry should be quite normal. Generally speaking, the steel industry is highly correlated with economic growth, and over the past decade, with the rapid development of China's economy, especially the investment-driven infrastructure and real estate industries, China's crude steel production has jumped from 100 million tons to 1.013 billion tons.
It can be assumed that if the steel industry had since 2006, in accordance with the unified deployment of the country, the elimination of backward production capacity and the integration of the industry, today's situation would not have occurred. From the lessons of the early photovoltaic industry, we can see the future of the steel industry, and the reshuffle will be very cruel. No matter what the industry, if you do not respect the laws of the market, you will eventually be mercilessly punished by the market. For the current steel market trend, the industry reshuffle, in the inevitable, after the tide recedes, the survival of the fittest is an inevitable trend.
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