Steel industry: demand slows down into meager profit

The way China's economic growth is changing is also changing, which means that the market slows down the growth of steel demand. In the “Sixth Executive Director (Expansion) Meeting of the Fourth Session of the China Iron and Steel Industry Association” held recently, Xu Lejiang, the new president of China Steel Association When introducing the operation of the steel industry in the first half of this year, he said.

As the largest consumer of iron ore in China, the slowdown in steel demand growth has a greater impact on mining companies. Recently, the international mining giants Brazil's Vale and Australia's Rio Tinto have released news, showing that the net profit of the two mining companies have seen a significant decline.

Despite this, mining giants continue to expand their production capacity, indicating confidence in China's iron ore demand.
Demand slows down, steel industry is falling into meager profit

After the “Glorious Decade” in the steel industry. In the past two years, the steel industry is undergoing earth-shaking changes, and it is normal for the whole industry to be in a small profit or in a loss. The slowdown in demand growth and the rapid growth of steel production have become the driving force behind the decline in steel prices.

According to the China Steel Association, in 2012, member steel companies realized a total profit of 1.581 billion yuan, a year-on-year decrease of 98.22%. In the past six months, the entire industry is in a state of loss. In the first half of this year, the situation of meager profit has not been able to fundamentally improve, and only realized profits of 2.267 billion yuan. In June, due to the continuous decline in steel prices, the industry suffered the first loss this year (loss of 699 million yuan).

Xu Lejiang said that in the case of economic slowdown and structural changes in growth, mainly due to the slowdown in demand from the steel industry, the rapid growth of steel production further aggravated the contradiction between supply and demand in the market and also suppressed steel prices.

He pointed out that in the first half of this year, the domestic economy grew steadily and GDP increased by 7.6%. In terms of growth structure, although the actual growth rate of fixed asset investment was 20.1%, which was higher than the actual growth rate of 18% in the same period last year, the growth rate of tertiary industry investment increased from 17% in the same period last year to 23.5%. Industrial investment growth was from the same period last year. 23.8% of the total fell back to 16.2%; the total investment growth rate of new fixed-asset investment projects in the country fell from 15.2% in the same period last year to 15.1%.

"These all indicate that the way China's economic growth is changing, it also means that the market's demand for steel is slowing down."

Xu Lejiang said frankly, "The adjustment of structure and transfer mode is the main tone of the Chinese economy in the future and in the next few years. There will be no high growth in steel demand in the second half of the year."

The mining price is lower, the mining company's net profit has dipped sharply.

As steel prices continue to fall, iron ore prices are "difficult to stand alone." In February of this year, the 62% grade Australian powder mine once reached $158/ton. Subsequently, the accompanying decline in steel prices declined, and by the end of June, it fell to an annual low of $113.5/ton, a drop of 28.2%.

China is the world's largest consumer of iron ore. China's steel demand growth has slowed down, and iron ore prices have fallen sharply, which has also had a major impact on international miners. Recently, the international mining giants Brazil Vale and Australia Rio Tinto have released news. On August 7, Brazil's Vale announced the “worst quarterly performance in ten years”. The net profit in the second quarter decreased by 84% year-on-year; on August 8, Australia Rio Tinto announced that its net profit fell by 71% in the first half of the year. Luo Baihui, an analyst at Jinmo Steel, believes that the slowdown in China's market demand has become the most fundamental reason for the decline in the net profit of mining giants. He pointed out that steel companies are more cautious about the purchase of iron ore when the domestic steel industry is in a low-profit environment. Since the beginning of this year, steel companies have adopted low inventory strategies to cope with market changes. Imported mine port inventory has also dropped significantly from previous years. It fell below 70 million tons in April and May this year. As of August 9, 30 major ports nationwide. Although the total iron ore inventory has rebounded to 71.03 million tons, it still has a significant decline from the port inventory of over 100 million tons last year.

A few days ago, the latest data released by the customs showed that China's iron ore imports reached 73.14 million tons in July, an increase of 10.84 million tons from the previous month, an increase of 26.39% year-on-year, setting a new monthly record. This "quantity" number has made many practitioners see new hopes.

Since the low in June, domestic steel prices have continued to rebound, steel companies have returned to profitability, and enterprises that originally planned to reduce production have increased their horsepower production, which has created demand for iron ore. In addition to the demand for replenishment of steel mills and the increase in the supply of ore abroad, the import volume hit a new high.

However, he also pointed out that the iron ore imports in July exceeded expectations, which had both accidental factors and some uncertainties. It is difficult to reach this number in the second half of the year.

Supply and demand for mining enterprises do not change their confidence

For the iron ore that has come, the long-term downtrend has become the consensus in the industry.

Or because China’s demand for iron ore will gradually stabilize in the next decade, or because low-cost ore will replace the current high-cost ore, or the market’s serious excess due to the expansion of mining companies, these factors will undoubtedly Helps reduce the price of iron ore.

In recent years, domestic and foreign miners have expanded their production. In 2012, the Mining Association announced 66 iron ore projects under construction, which will accumulate a total capacity of 430.5 million tons by 2020.

It is also reported that by 2015, the three major miners, Brazil's Vale, Australia Rio Tinto and BHP Billiton, the new iron ore production capacity is expected to reach 600 million tons. Together with emerging mines such as CITIC Pacific, Africa Mining, Kumba and London Mining, the global new iron ore capacity will be around 1 billion tons by 2015. The peak period of its production will be in 2014-2015, when the global ore production will increase significantly.

"Overall, the situation of oversupply of iron ore has been formed."

Despite this, international mining giants remain confident in the Chinese market. Citing media reports, Brazilian Vale executives said that despite the unfavorable environment of slowing economic growth, iron ore demand has not dropped significantly.

It is expected that iron ore prices will be firmly supported at US$110/ton due to China's urbanization and construction of affordable housing.

Due to the decline in ore demand in countries such as Europe, Japan and South Korea, and the demand in the Chinese market is still relatively strong, international miners are still optimistic about the Chinese market.

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