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Rapid growth in crude steel production is leading to an emerging oversupply pressure in the steel industry.
Release date:
2018-05-21
Source:
On May 15, data released by the National Bureau of Statistics showed that China's crude steel production reached 76.7 million tons in April, representing a year-on-year increase of 4.8%. Meanwhile, the average daily crude steel output hit a record high of 2.5567 million tons. Xu Liying, a researcher at the Lange Steel Research Center, told a reporter from Caixin that since the beginning of this year, due to efforts to eliminate "strip steel" production, previously off-balance-sheet data has shifted onto official records, keeping steel output consistently at relatively high levels. However, considering environmental restrictions and production curbs implemented in many regions, market expectations earlier predicted that the average daily crude steel output for April would hover around 2.45 million tons—close to last year’s peak of 2.441 million tons. Yet, according to the newly released figures, April’s actual average daily output exceeded these forecasts.
In the context of an improving industry outlook, steel companies inevitably feel the urge to expand capacity and boost production. Earlier reports have already indicated that, as钢厂 profitability improves, some "zombie" enterprises have secretly resumed operations. Moreover, last year, several steelmakers transitioned to electric furnaces, resulting in a gradual release of additional electric furnace capacity over the course of the year. Data It was revealed that in April, China's crude steel production reached 76.7 million tons, representing a year-on-year increase of 4.8%. Meanwhile, the average daily output of crude steel hit a record high of 2.5567 million tons.
Xu Liying, a researcher at the Lange Steel Research Center, told a reporter from Caixin that since the beginning of this year, due to efforts to eliminate "strip steel" production, off-balance-sheet data has shifted onto the official books, resulting in consistently high steel output levels. However, considering environmental restrictions and production cuts implemented in many regions, the market had widely predicted that April's average daily crude steel output would hover around 2.45 million tons—roughly matching last year's peak of 2.441 million tons. Surprisingly, according to the latest data, April's daily crude steel production actually exceeded last year's peak by 115,700 tons, far surpassing market expectations.
Looking at the month-on-month data, crude steel production averaged 170,200 tons per day in April, up from the previous month. Meanwhile, estimates based on data released by the China Iron and Steel Association indicate that member companies saw an average daily output increase of 131,000 tons compared to the previous month. This suggests that the growth in crude steel production was primarily driven by large and medium-sized steel enterprises.
Since April, as demand has gradually rebounded, steel market transactions have accelerated, leading to a rapid recovery in steel prices. On the supply side, with the industry’s profitability steadily improving, higher-than-ever steel prices have, to some extent, boosted production activities. According to market monitoring data from Lange Steel Network, the national comprehensive steel price index in early May 2018 (as of May 7) had risen by 97.4% compared to the beginning of 2016 (February 1), nearly doubling over that period.
According to Xu Liying, the significant increase in profits driven by persistently high steel prices is undoubtedly the main reason behind the continued rise in crude steel production this year. In the first quarter, the overall profit of the ferrous metal smelting and rolling industries surged by 64.1%. Meanwhile, large and medium-sized steel enterprises reported total profits of 56.932 billion yuan, compared to just 23.284 billion yuan during the same period last year—clear evidence that these larger firms have become even more profitable.
First quarter of 2018 steel Going public The company's deleveraging efforts have yielded significant results, Sales Expenses, administrative costs, and financial expenses all showed a downward trend, while the asset-liability ratio declined. Cash flow improved significantly, operating revenue increased, and profitability remained strong overall.
In the context of an improving industry outlook, steel companies inevitably feel the urge to expand capacity and increase production. Earlier reports have already revealed that, as钢厂 profitability improves, some "zombie" enterprises have secretly resumed operations. Moreover, last year, a number of steelmakers switched to electric furnaces, leading to a gradual release of additional electric furnace capacity throughout the year.
The China Iron and Steel Association warned that the rapid growth in crude steel production is putting significant downward pressure on the market and posing risks to the stable operation of the entire industry. The steel sector may once again face a situation where supply exceeds demand.
"Last year, steel prices surged, allowing many steel companies to turn a profit—and this year, they’re hoping to keep it up. However, we’re already seeing China’s economy shift from high-speed growth to a phase focused on high-quality development. As a result, the GDP growth target of around 6.5% suggests that demand for steel won’t be as robust as before," said Liu Zhenjiang, Secretary-General of the China Iron and Steel Association.
From the perspective of business operations, high profits naturally lead to higher production volumes. But can steel plants fully unleash their capacity? Shanghai Steel Alliance Information Director Xu Xiangchun believes this may not be the case. Xu Xiangchun noted that the China Iron and Steel Association only tracks output from key steel companies, while production from non-key enterprises remains outside the official statistics—yet these non-key firms are significantly affected by environmental restrictions on production. For instance, production has been curtailed in the Xuzhou region, and during the non-heating season, blast furnaces in Tangshan are operating at 10-15% capacity cuts. Meanwhile, most steel plants in Wu'an have already reduced their blast furnace output by as much as 50%. As a result, environmental restrictions are severely limiting the potential for increased steel production, leading to expectations that steel output growth in May will remain modest.
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