Steel industry makes big losses in Q1

The first quarter of 2014 has been the "coldest winter" for China's iron and steel industry since 2000, as more steel mills saw deficits and steel output continues to rise, indicated a news release by China Iron and Steel Association (CISA) Monday.

In the first three months of 2014, steel firms tracked by CISA saw a total loss of 2.33 billion yuan ($373 million), compared to a 3.28 billion yuan profit gained in the same period of 2013, according to the first quarter report released by CISA.

About 45 percent of 315 Chinese steel companies monitored by the association suffered losses in the first quarter, 15 percent higher than the first quarter of 2013, the report said.

The first quarter has always been a slow season due to the low demand caused by cold weather and the Spring Festival holidays, Zhang Changfu, secretary-general of the CISA, told a conference on Monday.

The steel price at the end of March saw a 11.28 percent year-on-year decline and the price has been dropping for seven consecutive months, the report said.

Another sign of weak market demand is the surging steel inventory registered in the first quarter. At the end of March, the steel inventory reached 19.41 million tons, 43.65 percent higher than the beginning of January, according to the report.

The rapidly increasing inventory indicates production overcapacity. China's crude steel output accounted for 49.97 percent of global output in the first quarter, the report said, only 0.03 percentage points lower than same period of last year.

The market demand for steel will not pick up against the backdrop of an economy facing downward pressure and the output will not see a big fall because of the large base of overcapacity, Zhang said, predicting the crude steel output will still have a 3 percent year-on-year growth in 2014.

In a bid to tackle overcapacity, China's State Council has already released a guideline in October 2013, tightening control of capacity expansion and phasing out obsolete plants that fail to meet environment protection standards.

In the first quarter, Chinese steel industry saw an overall 3.34 percent year-on-year decrease on fixed-assets investment but fixed- assets investment in the private sector increased by 6.65 percent from last year, the report said.

Under pressure from overcapacity and the government's requirements for capacity control, it became harder for steel enterprises to get loans from banks, he said.

Now banks have scaled down loans to steel companies and have also raised lending rates, weighing on steel mills' liquidity, Zhang said.

Although the steel industry is in a sluggish condition, there are still some companies that have good operations and are gaining profits, Zhang said, expecting banks can support the development of these firms.

For instance, Fangda Special Steel Technology Co, which is based in Nanchang, East China's Jiangxi Province, made a 563 million yuan profit in 2013, with 7.5 percent year-on-year growth, according to its 2013 earnings report released on April 2.

Fangda owns three iron mines, which helps the company to reduce costs and control iron ore quality, Wang Guoqing, a research director at Beijing Lange Steel Information Research Center, told the Global Times.

Moreover, Fangda has high-quality products to help it maintain a stable market share and as a Shanghai-listed private company, it can get financing from the stock market to offset the sluggish industry's negative impact on its capital chain, Wang said.