China's crude steel output (million tons)
Growing demand, supply-side reform help increase mills' profit
China may exceed the target to pare steel production capacity by 45 million tons this year, the China Iron and Steel Association (CISA) said at a press conference on Thursday.
Efforts to trim excess capacity seem to have been effective, as the domestic steel industry had met about 80 percent of its annual target as of September, the CISA noted.
The Chinese authorities have made efforts in the area of environmental protection and credit tightening for underperforming steel companies as they aim to reduce steel output, Chen Li, a research director specializing in the sector at East China's Jiangsu Province-based Huatai Securities, told the Global Times on Thursday.
The merger of some steel companies will help in cutting output, Chen said. For example, Shanghai-based Baosteel Group and Wuhan Iron and Steel (Group) Corp got approval from the State Council, China's cabinet, to merge in September.
But there are also some problems. More than 100 large and medium-sized steel companies tracked by the CISA were the major ones cutting output. Some small steel producers with outdated capacity are maintaining production, which is harmful for the industry's upgrading, the CISA said.
The country will still face great pressure to eliminate obsolete capacity next year, according to the CISA.
From January to September, China's crude steel output was 604 million tons, up 0.37 percent year-on-year, the organization's data showed.
China has shut down mills with total capacity of more than 90 million tons in the past five years, and it plans to cut steel production by an additional 100 million to 150 million tons by 2020, the Xinhua News Agency reported on October 22.
In the first three quarters of this year, the steel companies tracked by the CISA said revenue fell 8.05 percent year-on-year to 1.99 trillion yuan ($293.9 billion). These companies' profit was 25.21 billion yuan in the period.
Member companies of the association had a combined loss of 64.5 billion yuan in 2015.
"Growing demand and supply-side reform is helping increase steel mills' profit," Chen said, noting that steel prices have kept rising.
Supply-side reform is expected to lead to sustainable, quality growth in the steel industry, drive out obsolete capacity and achieve a supply-demand balance, Wang Guoqing, research director at the Beijing Lange Steel Information Research Center, told the Global Times on Thursday.
As of Thursday, the price of steel products had increased 36 percent from the beginning of this year, according to Beijing Lange Steel.
"Also, steel companies are trying to reduce operating costs by such means as using low-cost raw materials, as well as improving working efficiency," said Wang. These factors together support the steelmakers' performance.
But the steel market is still facing the problem of oversupply, Wang noted. Meanwhile, steel companies are facing pressure to be profitable, yet raw material prices continue to rise, said Wang.
From October 11 to 20, the price of coking coal, a key raw material in steel manufacturing, was up 5.2 percent to 893.8 yuan a ton compared with the previous 10 days, the National Bureau of Statistics said on Monday.
Steel companies still face difficulties in getting bank loans as well as exporting their products, due to growing trade protectionism, according to the CISA.
In the first three quarters of this year, the industry faced 38 anti-dumping and countervailing duty cases, with a total amount of $6.42 billion, said the CISA.
