Media Center

Position:Home > Media Center > Industrial Information > Ferrous Metallurgy –China Iron and Steel Industry: the Real Great Transformation being Round the Corner –Engineering Department

Ferrous Metallurgy –China Iron and Steel Industry: the Real Great Transformation being Round the Corner –Engineering Department

If the treatment of the ineradicable diseases of iron and steel industry is a battle, 2014 may be the year to declare war, because the tough situation allows no delay.

“Different from years ago when no actual measure was taken, the iron and steel industry will usher in the times of huge differentiation, extensive reorganization and deep integration”, said Xu Lejiang, Chairman of Baosteel, on January 12, who is now the Chairman of China Iron and Steel Association. Because of such promotion, the significance of this judgment sentence differs delicately.

“Differentiation”, “reorganization” or “integration” is not as easy as it sounds in terms of a traditional industry with fixed pattern formed years ago. However, Xu Lejiang had his reasons to make the above remark after taking a glance at the current situation of the iron and steel industry of China within recent years.

In the fourth season of 2011, the iron and steel industry started to lose profit, and in 2012, the industry encountered the first tide of industry-extensive losses since the beginning of 21st Century.

2013 should be the year when responses should be made by relevant governments, associations, enterprises and the difficulties should be treated. However, one can know from the outcomes of 2013 that although certain achievements were reached in fields of technical progress, environmental protection, energy saving, etc., problems influencing healthy development of this industry, such as excess production capacity, low concentration ratio, etc., have not been resolved yet.

According to the latest data from China Iron and Steel Association, the output of crude steel of 2013 increased to 779,000,000 t with year-on-year growth of 7.5% and reached a new high in the history. In addition, in consideration of percentages of outputs of enterprises with top 4 outputs and top 10 outputs in total outputs of China, which were 22.6% and 42.8% in 2011, 21% and 39.7% in 2012 and 20.8% and 39.1% in January-November 2013, the concentration ratio of the industry decreased instead of increasing.

Under the background of excess production capacity and unfair competition of iron and steel industry, iron and steel enterprises in China have been trapped into “vicious cycle of meager profit”. The profitability of the iron and steel industry of 2005 was as high as 6.25%, but that of 2013 was only 2.16% according to latest data.

If the treatment of the ineradicable diseases of iron and steel industry is a battle, 2014 may be the year to declare war, because the tough situation allows no delay. How will iron and steel industry of China differentiate? Who will dominate the reorganization? Which ways will be applied to realize the integration? Will 2014 witness the rebirth of iron and steel industry? We may learn something from opinions of Li Xinchuang, Deputy Secretary General of China Iron and Steel Association, and concurrently President of China Metallurgical Industry Planning and Research Institute.

China Machinery & Electric Industry: recently, Xu Lejiang mentioned that iron and steel industry would usher in the times of “huge differentiation, extensive reorganization and deep integration” at the (Enlarged) Board Meeting of China Iron and Steel Association. What do you think about this opinion? Iron and steel industry has been attempting to contain the excess production capacity for several years, but it seems that “the production capacity increased after adjustment” according to the actual results. Will there be any solid breakthrough?

Li Xinchuang: transformation of any industry necessitates preconditions. At macro level, the preconditions for transformation of iron and steel industry of China exist. A series of economic reforms performed targeted at and attached great importance to the decisive role of market. Reform of the iron and steel industry also depends on market, which contains two levels of connotations:

Firstly, the iron and steel market needs to be a fair market. This requires the governments to prepare scientific and practical market access mechanism and maintain a strict standard. Take environmental protection as example, compared with enterprises taking fewer environmental measures or even without any environmental measure, the costs of those strictly implementing the environmental standards spent on environmental protection are RMB 100 higher, which put such enterprises at a disadvantage. Therefore, this is not only about environmental protection, but also about fair competition of enterprises.

Certain enterprises can be knocked out and partial production capacity can be decreased by strictly controlling problems like environmental protection and creating a fair market.

Secondly, survival of the fittest enterprises should be realized by following the market discipline. Due to the rapid growth of production capacity of the iron and steel industry, lack of control of upstream mineral product industries, low industrial concentration ratio and other factors, the profit margins of iron and steel enterprise was once squeezed down, which was another disaster for enterprises under poor operation,lagging in technology and keeping product homogeneity. Many steel enterprises are making up their losses through investment, trade and finance businesses after they suffered from losses, and some other enterprises are attempting to improve their financial statements by decreasing the rate of depreciation. It seems that such enterprises are still in good status, but they are in sub-health status. Suffering from actual losses of main industry plus higher debt ratio, some of the iron and steel enterprises may be eliminated from the market in case of capital chain rupture.

Of course, different from cerement industry, integration of the iron and steel industry cannot be realized by some enterprises in the short run. Iron and steel industry is closely related to national economy and people’s livelihood, and there are tens of thousands kinds and specifications of steel products. This decides the complexity of transformation of iron and steel industry.

“China Machinery & Electric Industry”: during the first 11 months of 2013, total profits of large iron and steel enterprises included in financial statistics of China Iron and Steel Association was RMB 16.2 billion, and the total loss was RMB 0.8 billion compared with that of the same period of 2012, which means that great progress has been made. But how did they make the progress? What breakthroughs can enterprises make in this tough situation in 2014?

Li Xinchuang: to a great extent, this achievement was realized with non-steel industries, and the main iron and steel industry of most enterprises still suffers from loss. In addition, factors for making profits also include: significant decrease of prices of raw materials, especially coal and coke; decrease of rate of depreciation; and technical transformation, management enhancement, quality improvement, cost reduction and efficiency increase, etc. carried out by steel enterprises.

As for enterprises, sizes, resources, and regions of enterprises differ from each other, so they should seek for breakthroughs based on their own conditions.

As for the entire industry, large market space remains to be developed. For example, in developed countries like the United States and Japan, the percentages of steel structures used in newly established buildings are as high as 50%~70%, but that of China is only 4%. In the wake of change of architectural concept in China and the rising of architectural standards, large potential market can be developed.

In addition, along with the development of mechanical and electronic industry, automobile industry and other relevant industries, additional market may be developed by improving grades of steel used. Ball bearing steels, stainless steel and steel structure have better market prospect.