In 2012, the Chinese steel industry faced a significant downturn, with key enterprises reporting minimal profits. According to the China Iron and Steel Association, the 80 major steel companies only managed to make a profit of 1.58 billion yuan for the entire year. This marked a drastic drop compared to the 88.62 billion yuan recorded in 2011, representing a 98.22% decline in profitability. Out of these companies, 23 suffered losses totaling 28.92 billion yuan, which was 18.3 times higher than the combined profits of the profitable firms during the same period.
The poor performance of the steel sector also led to a slight reduction in investment. The National Bureau of Statistics reported that total investment in the ferrous metal smelting and rolling industry reached 505.548 billion yuan in 2012, down 2% from the previous year. This was the first decline since 2007, signaling a shift in the industry's growth trajectory. Meanwhile, investment in the iron ore mining sector increased by 23.7%, showing some resilience in related areas.
At the end of January 2013, the inventory of key steel enterprises rose to 10.72 million tons, an increase of 717,000 tons from the previous month. Despite this, market demand remained weak, with traders hesitant to purchase due to seasonal factors and low activity in the construction sector. Additionally, tight railway transportation near the Spring Festival caused delays, leading to a temporary buildup of steel stocks in factories.
Crude steel production in December 2012 fell to 1.86 million tons, just 7.9% above the annual high. However, by mid-January 2013, daily output had risen to 1.924 million tons, indicating a recovery. At the same time, steel inventories continued to grow, reaching 154.9 million tons for the top five products, up 32.2% from the previous low. Rebar, wire rods, hot-rolled plates, and medium plates saw increases of 39.9%, 46.7%, 31%, and 28.3%, respectively.
Steel stockpiles at northern ports were particularly high, with Tianjin Port holding around 1.05 million tons—its highest level in recent years. Key steel mills also saw a 13.4% rise in inventory, reaching 10.72 million tons. In Tangshan, the largest billet stockpile hit 1.15 million tons, the highest since 2011.
Steel mills learned from past experiences, realizing that price manipulation did not always lead to better profits. Instead, it often pushed up raw material costs and reduced processing margins. As a result, traders became more cautious, often canceling orders when prices dropped, adding pressure on mills. With steel prices fluctuating, mills preferred stability over short-term gains, leading to cautious optimism about current pricing trends.
Looking ahead, the steel market is expected to see gradual improvement. After the "defoaming" process, only strong and experienced traders remain, increasing market concentration. Many traders have returned to their core businesses, and most have completed winter storage. Post-holiday volatility may bring opportunities, but gains are likely to be smaller than in previous years due to the long upward trend earlier in the year.
For construction steel, a price increase of 100–200 yuan per ton is expected, with fast-moving operations becoming the norm. Market participants should closely monitor steel price trends, as any signs of stagflation could present a good entry opportunity.
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