2013 domestic steel prices may be low and high

In a recent speech at the 2013 Construction Machinery Product Development Forum in Beijing, Li Xinchuang highlighted that China’s crude steel production and consumption were expected to grow at a low pace in 2013. The country was projected to produce around 746 million tons of crude steel, with an apparent consumption of approximately 700 million tons. This indicates a slow but steady growth in the sector. However, the steel industry faced serious challenges, particularly due to overcapacity. According to Li, the current industry management system primarily targets large state-owned enterprises, while smaller and medium-sized companies face little regulation. Local governments, driven by the desire to boost tax revenues and GDP contributions, continue to support expansion in steel production. As a result, overcapacity has worsened, leading to intense homogenous competition and severe losses for many firms, especially during economic downturns. Data from the Ministry of Industry and Information Technology revealed that in 2012, the top 80 large and medium-sized iron and steel enterprises generated total sales revenue of 3.5441 trillion yuan, a 4.3% drop from the previous year. Profitability was also severely affected, with net profits falling by 98.2% to just 1.58 billion yuan. The sales margin was nearly zero, standing at only 0.04%. Li further explained that this small profit figure included earnings from investment and trade activities. In reality, these 80 enterprises had suffered a loss of 42.7 billion yuan within the steel industry itself. This highlights the deep financial struggles facing the sector. Regarding steel prices, Li noted that prices remained low in 2012, supported by both demand and cost factors. For 2013, there was an expectation of a slight increase compared to the previous year. However, structural issues such as overcapacity and fierce competition remained unresolved in the short term. Therefore, a sharp rise in steel prices was unlikely. Overall, the outlook for the year was described as “low in the beginning, high later, and upward in the long run.”

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