Steel industry: What is the breakthrough in overcapacity?

Recently, the State Council issued the "Guiding Opinions on Resolving the Contradictions of Serious Overcapacity in Production Capacity" (hereinafter referred to as "Opinions"). It is worth noting that the “prescription” that the country has issued this time is quite different. Compared with the previous measures to stop and suppress production capacity, the "Opinions" highlighted the word "resolve" and proposed to accelerate the establishment and improvement of a market-oriented long-term mechanism.

The introduction of the market mechanism will undoubtedly provide a way out for this long-standing and intensifying problem, and bring a warm breeze to these industries that are deeply involved in the low-end price competition.

From the seller's market to the buyer's market

Wang Libao, who is nearly 40 years old this year, has entered the steel industry since graduation and has now become the vice minister of sales for a medium-sized steel company in Shandong.

Standing in front of the large floor-to-ceiling windows of the office, looking at the rolling white smoke in the chimney of the factory, Wang Libao said: "For more than 10 years, I can say that I have witnessed China's steel industry from huge profits to loss-making operations, from the seller's market to The entire process of the buyer's market. Today, this once glorious industry has reached the moment of having to change."

Since the beginning of this year, China's steel industry can be described as a cloud of gloom. "In fact, since the second half of last year, the entire steel industry has been very sluggish. This situation reached its peak in the first half of this year. As far as I know, most steel companies have suffered a total loss in the first half of this year, and the steel industry PMI index continues to be in vain. Below the line. Li Yunming, the head of a large steel enterprise office in Hubei, has a low tone.

Li Yunming’s statement was also confirmed by Wang Libao. As a sales person of the company, he just returned from Hubei Hanyang on business trip yesterday afternoon. "Over the past year, all the sales personnel in our department have almost sent out and ran across the country. In steel prices, the right to speak of steel companies is also declining, sometimes selling a ton to earn tens of dollars, sometimes selling One ton lost tens of dollars. Unlike the previous years, the sales staff did not have to go out, sitting in the office, the steel traders who came to buy steel fell on the threshold."

The root cause of this situation, Wang Libao believes that the domestic and international macroeconomic conditions are sluggish and China's steel industry has been blindly doing so for many years. The fuse is that most steel traders have experienced financing difficulties since the second half of last year. "As far as I know, there have been many incidents in which steel traders in Shanghai and Zhejiang have been unable to afford bank loans. At the same time, even if the capital chain is OK, in today's economic environment, the mentality of steel traders also occurs. Great changes have taken place. Over the past year, steel prices have fluctuated too fast, and the shocks have consolidated. They are afraid to stock. At the same time, they are not likely to stock when the market is adequately supplied."

Although it is currently in the traditional "Golden September and Silver 10", steel prices have rebounded in the past week, reaching the mid-upper price since this year, but Li Yunming is still not optimistic about the market outlook.

“From the perspective of steel inventories, there are still repeated. At the end of September, China Steel Association counted 13.22 million tons of domestic key steel enterprises, an increase of 625,700 tons from the previous month; on the 27th, the physical inventory of 'My Steel Network' decreased to 1466.7. Ten thousand tons, but still increased by 1.02 million tons year-on-year, the two increased by time. After the National Day holiday in October, social stocks also increased significantly. From the perspective of production supply, although environmental pressure is coming, some companies consider seasonality. Impact, or prefer to maintain an appropriate production scale in October." In contrast to the most important demand factor, Li Yunming believes that the sustainability of the relevant industry improvement remains to be seen.

So, how serious is the overcapacity problem in the steel industry today?

“Overall, there must be excess. But in the case of a fixed supply, how big is the market demand, it’s really hard to say. There is a time lag between steel production and sales. Steel companies sometimes have high stocks and sometimes stocks. Low, this is a dynamic process. After all, until now, the production capacity of the national steel companies has been digested by the market. Although the steel price has declined in the competition, the profit margin of the steel companies has been continuously compressed, but the products are basically sold. Going out," Wang Libao said.

From administrative means to market means

The "Opinions" proposes to speed up the establishment and improvement of a market-oriented long-term mechanism to resolve the overcapacity contradiction, and to further highlight the role of local governments, and to include the work of curbing redundant construction and resolving the overcapacity of production capacity into local government performance evaluation indicators. system.

“Let the market mechanism work, this is a big step forward. Because from the current situation, the administrative measures to stop and suppress the production capacity of the above-mentioned industries in the past few years have not achieved the expected results.” “My steel network” research Yang Hua, deputy manager and industry researcher, told reporters.

In Li Yunming's view, the original intention of China to eliminate the backward production capacity of the above-mentioned industries in these years is to achieve market-oriented regulation of the industry's production capacity by improving equipment production efficiency and energy conservation and environmental protection requirements. The role of administrative means will not be significant, as capacity will continue to increase as long as the industry's rate of return is sufficient to attract capital. For example, in 2010 and 2011, when the backward production capacity was eliminated, the industry's profitability was still acceptable. The combination of “small and large” and new construction made steel production capacity continue to expand rapidly. As the industry's profitability has dropped significantly, capacity growth has slowed significantly in the past two years.

"Therefore, the market-based principle of survival and inferiority with profit as the core is the fundamental weapon to drive the exit of production capacity," Li Yunming said.

Zibo Qilin Fushan Iron and Steel Co., Ltd., the person in charge of the missionary family name, also applauded the introduction of the market mechanism. “Although I have not seen the specific documents, the formulation of the 'market mechanism' is a big plus for the company itself.”

Wang Libao interprets the market mechanism as “self-destructive”: “Now, China’s steel raw materials are too dependent on foreign mines, raw material costs continue to rise, and domestic demand in foreign countries declines. The profitability of steel companies is really small, most of them In the case of losing money, it will be compensated for production, otherwise it will lose more. However, large enterprises above the scale can afford it, its financing cost is low, and it has subsidiary industry support. But those small steel mills with annual production capacity below 1 million tons will lose. Can't afford it, naturally it will gradually close down and exit the market."

China's current monetary policy of “controlling the total amount and using the living stock” can also “add a fire” to the marketization of overcapacity industries. “Those small steel companies, the capital chain is generally tense, relying on loans, borrowing, etc. to maintain production. When the total amount of funds in the market is fixed, the funds will inevitably make choices and flow to those areas with high profits. This is the mastery of such production capacity. 'Dead hole'," Yang Hua said.

"At this stage, the National Development and Reform Commission must completely stop the approval of the above-mentioned new-capital projects in the overcapacity industries. For the early approval, such as Xuzhou, Rizhao, Linyi and other steel projects, there must also be a choice to make the existing capacity to survive the fittest." Bao seems that China's daily average crude steel production capacity of 2.15 million tons, at least to 2 million tons, the market supply and demand will be relatively balanced. “Even with the new demand brought about by the future urbanization process, the existing production capacity is sufficient.”

"In two to three years, the market mechanism will play a corresponding role, and the supply and demand situation of the above industries will undergo a qualitative change." Yang Hua expects.

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