In the first three quarters of this year, the profits of China’s steel enterprises have taken a significant hit, dropping by over 50% compared to last year, with the average profit margin falling to just 0.64%. This raises a crucial question: how can these companies navigate through this period of reduced production and transition towards greener and smarter operations?
On October 25, the China Iron and Steel Association (CISA) released data indicating that for major steel enterprises, total operating revenue amounted to 4.54 trillion yuan, a decrease of 6.87% year-on-year. Operating costs also fell to 4.31 trillion yuan, which is a 6.14% decline. However, the revenue drop outpaced the decrease in costs by 0.73 percentage points, resulting in total profits of 289.77 billion yuan—a staggering 56.39% decrease from last year.
Jiang Wei, vice president of CISA, pointed out that since the beginning of this year, the steel industry has been characterized by a notable shift towards reduced development and optimization of existing capacities. National apparent consumption of crude steel dropped by 6.2% in the first three quarters. In August and September alone, this figure fell by 13.5% and 11.1%, respectively, reflecting a persistent two-digit decline over two consecutive months. This has placed significant pressure on maintaining a balance between supply and demand. Additionally, effective demand has not kept pace with strong supply this year, exacerbating the supply-demand conflict in the steel market and leading to a noticeable drop in prices, subsequently pressuring profits.
According to Tang Zujun, another vice president of CISA, the primary challenges facing the steel industry today stem from a mismatch in supply and demand, coupled with persistently high raw material prices, although the supply-demand imbalance is predominant. From 2020 to 2023, China’s steel production has remained above 1 billion tons annually, while apparent consumption has steadily declined from a peak of 1.048 billion tons in 2020 to an estimated 933 million tons in 2023. This year, steel production reached 768 million tons from January to September, with projections indicating that annual production will likely exceed 1 billion tons, while apparent consumption may fall below 900 million tons.
Tang highlighted that with China’s urbanization rate surpassing 66% and infrastructure development reaching a mature state, demand for steel is expected to gradually decrease and stabilize. CISA forecasts that by 2035, demand could settle around 800 million tons. “In short,” he emphasized, “the trend towards reduction is an inevitable direction.”
When discussing the necessary transformations within the steel industry, Tang summarized four key areas: upgrading to high-end products, enhancing environmental sustainability, embracing smart technologies, and expanding internationally. He believes that in a highly competitive market, steel companies must focus on strategic planning, technological innovation, cost control, and building resilience and self-regulatory capabilities.
Jiang further urged enterprises to be acutely aware of the unique and severe challenges posed by the current market environment. Companies need to rationally confront the adjustments in the development phase of the steel sector while actively adhering to the central government’s mandate to avoid “involutionary” competition. By following the principles of “three determinations and three prohibitions” (determining production based on sales, avoiding turning cash into inventory; determining production based on effectiveness, preventing operational losses; and determining sales based on current conditions, not converting cash into receivables), they can collectively maintain market stability, improve economic performance, reduce operational risks, and achieve quality and effective growth.
Currently, the demand for steel in China is gradually shifting towards the manufacturing sector. By 2023, the shares of steel demand from manufacturing and construction are expected to be 48% and 52%, respectively, indicating that manufacturing demand could further increase moving forward.
Jiang emphasized that China remains the world’s largest steel market, consuming over 800 million tons annually. The overall asset situation in the steel industry is still relatively sound. He expressed confidence that as long as companies make rational judgments about the current situation and actively respond by reinforcing self-discipline and preventing “involutionary” competition, the Chinese steel industry will continue to demonstrate strong resilience and potential for growth.
