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Steel prices are falling, local governments are striving to reduce production capacity

Time:2019-10-17 【go back】

According to data released by Platts, the China Steel Emotion Index (CSSI) was only 38.09 points in October (China's steel sentiment index is greater than 50, indicating an increase or expansion, while less than 50 means a decline or contraction, up to 100 points).

Compared with September, CSSI in October fell by 7.78 points from 45.87 points in September, the lowest level since January this year. In response to the first half of the year, the steel sales settlement price of key statistical steel enterprises fell to 3212 yuan / ton. At the end of August, the steel alloy comprehensive price index has fallen to 90.63 points, the lowest level in 11 years.

In response to this, some analysts said in an interview with Securities Daily that "overcapacity and scattered layout. In fact, there have been such predictions before the steel production crisis broke out. However, because the real estate industry was booming, steel companies saw it. Sweet heads, no time to take care of hidden dangers. Now it seems that steel overcapacity is serious, steel prices continue to fall, the hidden dangers accumulated over the years have been broken, the key is that it has been unable to look back, the production can only be adjusted through the market, and the market regulation is white steel enterprises Fighting the price between the market, who lost who was eliminated."

Shen Meng, executive director of Shannon Capital, told reporters that "the record decline in iron ore prices this year is actually beneficial to the development of the domestic steel industry. However, because the overcapacity of China's steel is too serious, this kind of profit will not be good. The value is mentioned."

Steel companies do not dare to lose the market

With the “slow down” of steel prices, the days of steel companies are already hot. According to the statistics of China Steel Association, the total profit of large and medium-sized steel enterprises in the first seven months was 11.328 billion yuan, of which the main business profit was 1.929 billion yuan. Although compared with last year's loss of 3.169 billion yuan, it has turned losses into profit, but the sales profit rate is still only 0.54%, the lowest in the industrial sector.

Ironically, even at such a low level of profit, steel companies are still "playing" production of steel. According to relevant data, crude steel output in January-August this year was 55.01 million tons, up 2.6% year-on-year; January The output of steel in August was 74.21 million tons, up 5.4% year-on-year; the output of pig iron in January-August was 4.8325 million tons, up 0.5% year-on-year.

The analyst said, "Li Keqiang once said that the overcapacity industries are all approved. The steel industry has four characteristics compared with other industries, that is, the funds are large, the plates are large, and it is difficult to turn around. Coordination, in this way, the problem of overcapacity in the steel industry is particularly prominent. Previously relying on real estate led the steel industry to be in full swing, but with the slowdown in the development of the real estate industry, the steel demand suddenly fell, causing the steel industry to encounter Waterloo."

Even so, many steel companies still have no intention of reducing production capacity. Analysts said that it is difficult to say that steel companies do this. "The demand is cut off, but the output is not well intercepted. The layout of the steel market is very scattered, resulting in limited production of steel enterprises. And there is a risk that the market may be seized by another steel company, so the scalp will be produced anyway."

Shen Meng also told reporters that "most of the steel produced by domestic steel enterprises is steel for construction. There are not many real high value-added steel products. Before that, real estate was the pillar industry of the domestic economy, and steel enterprises relied on real estate to produce steel in large quantities. To seize the steel market share, even if the demand is sluggish, steel companies are reluctant to cut production capacity, because reducing production capacity means loss of market share, and it is very difficult for steel companies to lose market share if they want to get back."

Reducing capacity has a long way to go

In May of this year, the Ministry of Industry and Information Technology proposed to eliminate the ironmaking capacity of 19 million tons and the steelmaking capacity of 28.7 million tons in 2014. With the increasingly strict environmental protection requirements and the tightening of the credit system by banks, some steel companies with environmental debts, poor capital turnover, high debts and serious losses are facing the fate of being eliminated or shut down.

In the opinion of analysts, the country's current elimination and restriction of production capacity is still mainly aimed at backward production capacity, and there is still a lack of necessary restrictions on steel production capacity that meets the requirements. “Now only administrative means are used to allow outdated production capacity to exit the market. How to reduce the production capacity? What is missing in the steel industry is to improve the exit mechanism, but if the local government allows the steel enterprises to limit production or shut down, how can the employees of the company be resettled? The current flaw in the steel industry is that there is no suitable exit mechanism. In the case of the market, it can only be adjusted through the invisible hand of the market. At present, overcapacity will definitely lead to vicious competition and excessive competition."

At a time when steel production capacity remained high, the attitude of local governments to reduce production capacity was also quite intriguing. An industry insider who did not want to be named told reporters that “even if the state has formulated relevant policies to control production capacity, local government implementation will also Make a discount because it is about local taxes and local government performance."

The reporter also learned that government subsidies have also played a big role in “modifying” the accounts of many steel companies. Take Hualing Iron and Steel as an example. In the first half of the year, the company's net profit for the first half of this year was 19,012,100 yuan, and the company's government subsidy for the first half of this year was 7,940,400 yuan, which was 4.17 times of net profit.

In this regard, Shen Meng said, “Steel enterprises are pillar industries for local governments. Local governments will not make drastic reforms to steel enterprises because of the need for local employment stability and social stability, which also makes it possible to reduce excess capacity. The power is not enough. The local government officials are mostly term system management, so they may not be far-sighted and consider long-term. After all, local officials are more oriented towards short-term policy benefits. As long as they can start work, they can ensure employment and ensure social stability. Even if it is subsidized by the government, it must support the production of steel enterprises."

Analysts also said that the contradiction in the industrial structure of the steel industry is deeply rooted, and it is not necessary to solve it overnight. "Overcapacity has a great relationship with the local governments in adopting investment preferential policies and officials chasing GDP. It is difficult to cut production capacity. It is only steel production, and it also involves social stability. Therefore, it needs to be carried out in an orderly manner. For example, it is necessary to increase the supervision of environmental protection and quality, or to adopt differential electricity prices, differential water prices, and differential sewage charges.

For the future of the steel industry, Shen Meng said that in the current economic situation, the steel industry is hard to find a turning point. "The country is now slowing down the growth rate of GDP. For the steel industry, it is difficult to have steel demand. The improvement of quality, steel companies are also difficult to find an opportunity to ease their increasingly tight capital chain, and the real estate industry is now difficult to turn over in the short term, the steel industry is even more difficult to see the dawn."


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