On January 3, 2024, the official website of the China Iron and Steel Association disclosed information that it is expected that China’s steel exports in 2023 will exceed 90 million tons, which is historically only lower than 2014-2016, with imports of about 7.6 million tons.
From the annual performance of 2023, the steel industry gradually reversed the decline after experiencing a downturn in the first quarter.
According to Lange steel network data statistics, in the first quarter of 2023, the domestic steel industry had a loss of 4.84 billion yuan, but the second quarter turned a loss into a profit, achieving a profit of 6.71 billion yuan. Entering the third quarter, the industry profit soared to 20.92 billion yuan. It is worth mentioning that only in October to November, the profit of the steel industry reached 17.25 billion yuan.
Industry insiders said in an interview with a reporter from China Business News that the stabilization and recovery of steel prices, the reasonable control of raw material costs and the continuous efforts of steel enterprises in reducing costs and increasing efficiency and product innovation have jointly promoted the improvement of the profitability of the steel industry. In the future, with the growth of market demand and the optimization and upgrading of industry structure, the steel industry is expected to continue to rise.
Profit improvement
In 2023, the steel industry began to show significant signs of profit improvement in the second half of the year after experiencing a downturn in the first half of the year.
According to the data of the National Bureau of Statistics, from January to November 2023, the operating income of ferrous metal smelting and rolling processing industry was 7.630.35 billion yuan, down 2.3% year-on-year; Operating cost was 7,291.03 billion yuan, down 2.7% year-on-year; The total profit was 400.4 billion yuan, up 275.6% year-on-year.
According to the data analysis of Lange Iron and Steel network, in November 2023, the black metal smelting and rolling processing industry made a monthly profit of 13.37 billion yuan, an increase of 9.49 billion yuan from the previous month. Specifically, from the perspective of 2023 single month profit data, the domestic steel industry lost 10.1 billion yuan from January to February, earned 5.25 billion yuan in March, earned 5.23 billion yuan in April, lost 2.49 billion yuan in May, earned 3.97 billion yuan in June, earned 3.09 billion yuan in July, earned 9.83 billion yuan in August, and earned 8 billion yuan in September. It earned 3.88 billion yuan in October and 13.37 billion yuan in November.
Ge Xin, deputy director of the Lange Steel Research Center, told reporters that the profit margin of domestic steel production enterprises is continuing to recover. The continuous decline of comprehensive costs, as well as the adjustment of cost reduction and product structure of steel enterprises, have jointly improved the profitability of steel enterprises.
Looking back at the first half of 2023, affected by factors such as weak demand for real estate and infrastructure investment, the steel market demand declined, and the industry experienced a difficult period.
A steel company executive told reporters that the steel industry experienced a downturn in the first half of 2023, showing oversupply, falling prices, declining profits and the trend of expanding losses of enterprises. Especially in the second quarter, the contradiction between supply and demand in the market has become more acute, resulting in steel prices fluctuating at a low level, further aggravating the production and operation pressure of steel enterprises.
However, since entering the second half of 2023, due to the combined influence of multiple factors such as the strong expectation of macro policies, the gradual effect of steel mill production reduction, the concentrated release of rush demand, and the resilience of raw material costs, the domestic steel market has begun to show a volatile rising market.
“Especially in November, the profit of steel mills improved significantly, mainly due to the recovery of market demand and the strengthening of cost support,” Ge Xin pointed out.
Gexin believes that under the guidance of the policy expectations of the Central Economic Work Conference, as well as the support of various policy funds, the terminal demand has shown a more obvious resilience. The increased resilience of cost support will also form a strong support for the steel market, therefore, the domestic steel market in December 2023 presents a high and volatile market, and the profit improvement trend of the steel industry is expected to continue.
Prices rise and then fall?
At the beginning of 2024, a number of industry experts and analysts studied and judged the price trend of the domestic steel market. Comprehensive views of all parties, the market generally expects steel prices will show a trend of first down and then up, of which cost support factors are particularly key.
Zhuo Chuang information analyst Bi Hongbing told reporters: “By the supply and demand double-drop game, leading factory prices rise, low inventory levels, macro indicators are uneven, seasonal and other comprehensive factors, in January 2024 steel market prices are expected to have a certain rebound opportunity under the influence of the policy market.”
Donghai Futures also holds a similar view, that the steel market in January 2024 is still possible to further rise.
The East China Sea futures analysis said that before the Spring Festival, the actual demand is weak on the steel market still exists, but the performance of the industry will also be differentiated, and the manufacturing industry is significantly stronger than the construction industry. At the same time, before the arrival of the peak season, strong expectations, high costs and winter storage game are still the main logic of steel market operation. With the pressure on the supply of steel market in the first quarter of the policy end will be reduced, and if the supply is adjusted solely through profits, the process is relatively tortuous, so the probability of bottoming out at the supply end is greater. This could further reinforce the cost-support logic.
Zhuo Chuang information analyst Gao Hengyu emphasized the impact of raw material costs on steel prices. He said: “Since December 2023, steel market demand has continued to weaken, while the continued high cost of raw materials has made steelmaking profits under pressure, some enterprises have reduced their willingness to produce and began planned maintenance, making steel supply tightened.” In January 2024, the demand side of steel may improve. This will lead to steel production recovery and steel prices continue to rise.”
Gexin believes that in the short term, the domestic steel market will show a pattern of “continuous disturbance of short-term geopolitical conflicts, continuous consolidation of the foundation of economic stability, strengthening of counter-cyclical and cross-cyclical adjustment, and accelerating the implementation progress across the country.” From the cost side, due to the relatively strong prices of iron ore and scrap steel and the stable operation of coke prices, the production cost resilience support is still obvious.
Based on the above analysis, Gexin predicted that under the joint influence of factors such as accelerated implementation of policies, weak continuation of supply and demand, lack of willingness to winter storage, and cost resilience support, the domestic steel market in the beginning of 2024 May usher in a first-down and then rising market.
Adjustment of supply and demand structure
Under the common influence of the “double carbon” goal and the domestic and foreign economic situation, China’s iron and steel industry is experiencing a profound supply-demand structure adjustment.
Ge Xin pointed out that from the situation faced by steel enterprises since 2023, the supply and demand structure shows a clear differentiation trend: the supply side is strong, but its variety structure is also differentiated; The performance of the demand side is relatively weak, but there are also strong downstream demand support. The industry has shown a clear pattern of “high cost, strong supply, strong external demand, weak domestic demand, structural differentiation, and profit improvement”.
Gexin further said that in the future, under the background of “double carbon”, domestic steel enterprises will face a series of challenges and opportunities such as “green industry, high-end products and intelligent process”. At the same time, the domestic steel industry will also usher in three periods of coexistence, namely, “supply platform period, demand adjustment period, profit differentiation period.” Therefore, steel enterprises should be prepared to “meet challenges, improve internal strength, and overcome difficulties” in order to adapt to changes in market demand and the green development trend of the industry.
At the same time, Bi Hongbing stressed the importance of stabilizing the economic operation of the steel industry from both sides of supply and demand. He believes that stable growth is not simply to increase production, but to transform and upgrade traditional industries with support, extend advantageous industries, cultivate emerging industries, and layout future industries. This view coincides with the working ideas put forward in the Work Plan for steady Growth of the steel Industry (hereinafter referred to as the “Plan”).
Although the “Plan” was announced in late August 2023, the overall sustainability is strong. 2024 coincides with the critical stage of the “14th Five-Year Plan” and is also a key period for the accumulation and momentum of the 2035 vision goal. As a basic and pillar industry of the national economy, steel is of great significance to the stable growth of industry and the smooth operation of the economy.
The “Plan” clearly states that it is necessary to exert efforts from both ends of supply and demand, focus on stable operation, expand demand, promote reform, help enterprises, and strengthen momentum, and has formulated a series of specific measures to implement technological innovation and transformation actions, steel consumption upgrading actions, supply capacity improvement actions and leading enterprise cultivation actions. Among them, improving the concentration of the steel industry is an important part of the “Plan”. It aims to optimize the industrial structure and improve the overall competitiveness of the industry through mergers and reorganizations.
Bi Hongbing said that the joint restructuring of steel enterprises will continue in the future. This will help to improve the concentration of the steel industry and form 5-10 steel industry chain leading enterprises with ecological dominance and core competitiveness. At the same time, it will also provide the basis for our country to compete for the right to speak of ore. With the simultaneous improvement of enterprise concentration and pricing power of all parties in the supply chain, the position and influence of China’s steel industry in the global market is expected to be further enhanced in the future.
