Steel industry troubles persist despite upturn

26 of 88 major plants still in red

A total of 26 out of 88 medium and large-sized iron and steel enterprises are still in red, with the combined loss of 8.93 billion yuan ($1.43 billion) in the first five months of this year, the Economic Information Daily reported Wednesday, citing data from the China Iron and Steel Association (CISA).

From January to May this year, the sales revenue of 88 steel producers hit 1.5 trillion yuan, a slight growth of 0.95 percent year-on-year. The profit reached 1.75 billion yuan, a decrease of 46.55 percent over the same period of last year, said the report.

On a month-on-month basis, the 88 major plants' profits amounted to 2.85 billion yuan in May, an increase of 132.4 percent from April, the report said.

Among the plants with an annual production capacity of 5 million tons, 18 witnessed a decline in sales income, and nine reported losses.

Workers at Xilin Iron & Steel Group, the largest private steel plant in Northeast China's Heilongjiang Province reportedly went on strike on Monday, demanding salary payment.

The group incurred a loss of more than 1.4 billion yuan in 2012, and its debt hit 24 billion yuan by the end of 2012, followed by the debt of 19 billion yuan in the first quarter of this year, the China Business News reported Tuesday.

Also, Shanxi-based Haixin Iron and Steel Group was expected to announce bankruptcy this month, the Securities Daily reported on Tuesday.

"The steel industry has entered into a period of big adjustment," Chi Jingdong, vice secretary-general of the CISA, was quoted as saying.

According to Chi, the iron and steel demand in China will remain sluggish for a long period, because the demand from infrastructure, housing construction and automobiles is not strong. Meanwhile, with the steel industry continuing to be glutted with oversupply, the steel price will remain low for quite a long period, resulting in losses for the industry.

Also, the iron and steel industry is facing tightened lending conditions, which can strain cash flows.

However, Chi warned that "the industry has not entered the worst period," and it could face more challenges as the nation adjusts its economic structure.

Xu Xiangchun, an expert from steel information portal mysteel.com, was quoted by the Economic Information Daily as saying that a decline in the price of raw materials cut the plants' cost pressure, but the iron and steel market is not promising in the near term, due to weak demand in the second quarter of this year as well as other factors such as rising supply of iron ore.