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Industry Alerts Are Not Removed. Steel Price Staged Roller Coaster.
- Jan 15, 2018 -

Recently, a survey by Beijing Commercial Daily reporter found that from the end of 2017 to early January 2018, there was a "roller coaster" -like change in steel prices, soaring from the road to dropping. On January 13, Beijing Commercial Daily reporter learned from the 2018 council of China Iron and Steel Association ("CISA") that after a series of measures such as de-capacity and corporate reorganization, the price of steel should be returned reasonably and the profitability of steel enterprises Also further enhanced. However, capacity warnings have not been completely lifted. Previously, roller coasters staged on steel prices proved that the steel industry is still facing the risk of blind expansion of production capacity, the revival of strip steel and the high asset-liability ratio of the industry.

Market environment improved

On January 13, Mr. Jin Wei, president of China Steel Association, presented at the 2018 council meeting of China Steel Association. After two years of hard work, the steel industry solved over 115 million tons of surplus production capacity, and basically strengthened the industry through self- The vicious competition in the market environment, so that fair market pricing system to be restored.

 Steel prices return to rational development at the same time, corporate profitability has also been further enhanced. In the first eleven months of 2017, the steel enterprises of China Steel Association (CASC) made a total sales revenue of 3.35 trillion yuan, up 35.05% over the same period of last year and achieved a total profit of 157.8 billion yuan, an increase of 123.2 billion yuan over the same period of last year. Some long-term loss of the company also achieved a turnaround. Beijing Commercial Daily reporter statistics report on the performance of many steel companies found that in the first half of 2017 a number of steel companies record highs.

Shougang shares in the first half of 2017 net profit of 949000000 yuan, an increase of 56 times, the highest since the company listed the highest annual profitability. Magang shares net profit of 1.643 billion yuan, a record half-year profit since 2009, a new high. Before the continuous loss of * ST Valin, first half net profit of 956 million yuan, while 2015, 2016 * ST Valin loss of 2.959 billion yuan, 1.055 billion yuan. Jin Wei suggested that steel enterprises should make full use of the current market situation is favorable, the benefit of improving the favorable opportunity, and further by strengthening management, promote cost reduction and efficiency, adjust investment strategy, increase the proportion of direct financing, and other ways to leverage.

Roller coaster prices

Looking at previous steel prices, it seems that there has been a "parabola" from a spectacular surge to a step by step approach. Limited supply plus demand and heavy volume led to steel prices soaring for some time. In environmental protection, according to the classification management of the 2017 air pollution prevention and control work plan for Beijing-Tianjin-Hebei region and surrounding areas, the production capacity of steel in the heating season in key areas of Handan, Tangshan, Shijiazhuang will be limited to 50%. In terms of capacity-to-production, the Seventh Regulatory Dept. of the State Council successively went to three prefecture-level cities in Suqian, Taizhou, Suzhou at the end of July, and randomly sampled five strip steel enterprises illegally produced.

While the supply is limited, the market demand for steel has not weakened, and construction orders rebounded sharply. Steel prices have shown a clear upward trend due to the low absolute inventories and drastic reduction in supply during the heating season. Data show that in November-December 2017 steel prices rose sharply, or 1000 yuan. On December 1, 2017, the price index of steel products in the western part of the Shinkansen exceeded the 5000 mark.

However, the long-term prospects are not short off-season market did not spread throughout the winter, the domestic steel market is still weak downward. As of January 10, the price index of steel for the Western Route Shinkansen has dropped to 4140 points, shrinking 1090 points from the highest point of 5230 points. According to the news, on January 8, the prices of rebar in 23 major cities of Shanghai, Jinan, Tianjin and Guangzhou dropped by 50-220 yuan / tonne in 25 major cities; in 21 cities like Shanghai, Beijing, Wuhan and Shenyang, Fell 10-100 yuan / ton.

For the performance of the roller coaster in the steel industry, Lin Boqiang, director of the Department of Energy and Economics of Xiamen University, told Beijing Commercial Daily in an interview that the sudden and sharp increase in steel prices is irrational and speculative. At present, there are many "fringe enterprises" in the industry, which do not fully comply with the industry standards but are not shut down. In the face of strict environmental inspector, such enterprises will be temporarily closed to avoid checking. This behavior has a greater impact on production and supply, resulting in a larger price volatility in a short period of time.

Risks still exist

Although the steel market has entered a stage of rational development, it is still facing the risk of blind expansion of production capacity and the resurgence of strip steel. Jin Wei said that the current in particular need to be highly vigilant the impulse to expand the new round of production capacity, steel prices do not have the basis for sustained and rapid rise. Xia Nong, inspector of the National Development and Reform Commission, stressed that although the task of banning steel strip has been completed, it is still necessary to guard against the resurgence of strip steel in some areas and the resumption of production of excess capacity that has been shut down.

In order to prevent blind expansion of production capacity and increase production concentration in the industry, the reorganization of enterprises and the retreat of zombie enterprises have become important links. Public information shows that the State Council issued in September 2016 "on the steel industry mergers and acquisitions zombie corporate governance guidance" pointed out that by 2025, China should achieve 60% -70% of the output concentrated in about 10 large-scale steel Within the group, 3-4 steel groups with a capacity of 80 million tons, 6-8 steel groups with a capacity of 40 million tons, and some specialized steel groups including specialized steel groups such as seamless pipes and stainless steel have been set up. Currently, less than 40% of the industry concentration and 60% of the low-line target there is still a small gap, so in 2018, the restructuring of the steel industry will also become a major aspect.

Over the past two years, the steel industry has completed a number of heavyweight mergers and acquisitions. The first shot that started the restructuring of the steel industry was BaoWu Steel. In June 2016, Baosteel Group and Wuhan Iron and Steel Group announced the start-up of strategic reorganization. From Baowu restructuring, in 2015, Baosteel Group's crude steel output was 34.93 million tons and WISCO's crude steel output was 25.77 million tons. The combined crude steel output after the merger would reach 60.7 million tons, becoming Second only to ArcelorMittal the world's second largest steel group. According to the data provided by Baosteel, in the case of crude steel output, the newly merged Baowu Company will rank the third in the global steel market, the third in the car plate production capacity and the first in the oriented silicon steel production capacity.

Subsequently, the strategic restructuring of CITIC Group Qingdao Special Steel, Baowu capital market integration, Sha Steel and Benxi Iron and Steel reorganization of Northeast Special Steel, Beijing Jianlong Heavy Industries restructuring Beiman Special Steel, Baoshu Department of Siyuan Fund and Chongqing War Fund jointly The establishment of the Longevity Steel Company and the participation in the bankruptcy reorganization of Chongqing Iron and Steel are all important measures in restructuring the steel industry.

It is noteworthy that the steel industry mergers and acquisitions are also facing great resistance, which is not the same with other manufacturing. Iron and steel enterprises bear the responsibility of local taxation and employment. Restructuring also involves issues including the nature of enterprises, ownership, investors and the rights and interests of local governments in different regions. Jin Wei said that the current asset-liability ratio in the steel industry is high, with business risks and debt risks. De-leveraging is an important breakthrough in the iron and steel industry to achieve its goal of achieving a clear-cut and high-quality development. China Steel Association suggested that the steel industry should use 3-5 years to reduce the asset-liability ratio to 60%. (Source: Beijing Commercial Daily)

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