Output, consumption fall as oversupply persists
China's steel industry continued to struggle in the first nine months of the year, as consumption slumped, prices hit a record low, and oversupply remained a major problem despite a fall in output, an industry body said Wednesday.
Apparent consumption of crude steel dropped 5.82 percent year-on-year in the first nine months of 2015 and by 8.65 percent year-on-year in September, the China Iron and Steel Association (CISA) said in a press release.
Output of crude steel in the first nine months dropped 2.14 percent year-on-year to 610 million tons, while exports increased 27.2 percent year-on-year to 83.1 million tons, according to the CISA press release.
Steel prices have been dropping for the last four years and constantly hitting new lows, the CISA said.
The CISA China steel price index dropped by 28 percent from the beginning of the year to 59.83 points in the third week of October, a new record low.
Losses at major Chinese steel makers are worsening, with total revenue for large- and medium-sized corporations falling 19.26 percent year-on-year to 2.24 trillion yuan ($352.4 billion) in the first nine months, according to the CISA.
Analysts said the Chinese steel industry is going through the hardest time it has ever experienced, with many companies operating at a loss and in danger of going bankrupt.
"This is not a coincidence; it's an inevitable situation that the Chinese steel industry finds itself in, as the overall economy is facing downward pressure," said Ma Zhongpu, an analyst at Beijing-based industry consultancy chinaccm.com.
The steel industry will continue to face difficulties for a long time, as various factors have contributed to the current situation, Ma told the Global Times Wednesday.
The CISA said lower demand, overcapacity, higher production costs and financing difficulties had all contributed to the hard times the Chinese steel industry is facing.
According to the CISA, the price of imported iron ore has seen two major rises this year, reaching $58.1 per ton on September 11, an increase of 28.7 percent from July 8, while the price of crude steel has dropped.
Chinese steel makers also face difficulties in fundraising even though the country has cut benchmark interest rates and banks' reserve requirement ratio several times this year, the CISA said, noting that the amount of money steel makers borrowed from banks dropped 2.02 percent year-on-year in the first nine months.
The CISA said that as demand and consumption of steel in China have peaked, the industry can no longer rely on growth in these areas to solve its problems - instead it must adjust to the new era.
Reining in excessive output is essential for addressing the oversupply issue, as it is unrealistic to hope that demand will increase under the current economic climate, Zhu Jimin, executive vice president of the CISA, was quoted as saying in a report posted on the CISA website on Wednesday.
But Ma said that just cutting output would not be enough, and that's why China is making certain investments, such as in infrastructure, to help maintain a certain level of steel demand.
Wang Guoqing, director of Beijing-based Lange Steel Information Research Center, noted that investing in infrastructure projects such as high-speed railways and roads could help boost demand to a certain extent.
But the construction of many newly approved infrastructure projects has not started yet, partly due to difficulties in raising finance, Wang told the Global Times Wednesday.
Experts said Chinese steel makers also need to adapt to the new environment through boosting efficiency and seeking new markets overseas.
