In 2014, China’s economy entered a “new normal”, economic growth shifted from high-speed growth to high-speed growth, and the industrial structure was constantly optimized and upgraded. In this context, the steel industry, which has a high degree of correlation with macroeconomics, has also shown new development characteristics. The era of high growth and high profitability driven by rapid growth in demand has ended, with excess production capacity, output growth, slowing demand, and low prices. The development pattern characterized by micro and export pull can be said that the iron and steel industry has also entered the “new normal”, which is both a difficult period for the development of the industry and a key period for accelerating structural adjustment, deepening reform, and innovation and development. Opportunities and challenges coexist.

Rapid expansion of production capacity needs to be transformed into high-quality and high-efficiency production

In recent years, due to factors such as blindly over-investment and overcapacity construction, the problem of overcapacity in the steel industry in China has become a prominent issue and has become one of the fundamental problems in the iron and steel industry. It is estimated that the national steel production capacity in 2013 will total about 1.14 billion tons. In 2014, although the growth rate of China's crude steel production declined significantly, supply growth was gradually being adjusted back to a reasonable range that was in line with the increase in demand. However, due to the large volume scale, absolute production remained at a high level. According to statistics, in the first 11 months of 2014, the country’s crude steel production reached 749 million tons, an increase of 1.9% year-on-year, and the growth rate was down by 5.9 percentage points from the same period of last year. It is estimated that the annual crude steel output will exceed 800 million tons. As of the end of November 2014, the steel stocks of key enterprises across the country amounted to 14.31 million tons, which represented an increase of 2.17 million tons from the beginning of this year. In the most part of the year, the total inventory of steel enterprises was running at a high level between 1.38-0.8 million tons. Steel Factory inventory pressure increased significantly.

The oversupply situation puts production companies under heavy pressure. However, some enterprises with relatively backward technologies, poor market competitiveness, and no sales margins do not timely adjust production rhythms in order not to be eliminated by the market, resulting in excess capacity and slowing demand. Under the market environment, the “Vicious Destruction, More Production and Deficit” vicious circle has further aggravated the oversupply and profit decline. In this special context, the transformation and upgrading of the steel industry is imminent. The elimination of backward production capacity will be further increased. Under the dual pressures of policies and markets, some small and medium-sized steel companies that are not environmentally friendly, have poor capital turnover, have high debt, and suffer serious losses will face the fate of being eliminated or shut down. In addition, simply expanding blast furnaces and increasing production lines can no longer bring long-term development to the company. Enterprises must increase their own transformation and upgrading, strengthen technological innovation, save energy, reduce pollutant emissions, increase production efficiency, and increase high-quality, high added value. The output of a product is a transition from a resource-intensive enterprise to a technological innovation.

Sharp increase in exports needs to transform into a strong country

Since 2014, the external market has improved relatively. The spread between steel and foreign products has expanded. China's steel export volume has continued to soar. The year-on-year growth rate has increased from 37.6% in January to 94.4% in November. In November, the monthly export volume has approached 10 million tons. , constantly refresh the historical record. In the first 11 months, China exported 83.61 million tons of steel, an increase of 46.8% year-on-year, the highest growth rate in four years. However, during the same period, the growth rate of export value was generally lower than the growth rate of exports. In November, the export value increased by 56.1% year-on-year, and the average export unit price also fell from 829 USD/ton in January to 684 USD/ton in November, a decrease of 17.5. %, which is 5-6 percentage points higher than the decline in domestic steel prices over the same period. While the volume of exports has grown rapidly, the growth in export value has not kept pace.

For a long time, China’s steel exports have mostly competed on the international market with price advantages, and the export target countries have also set more trade barriers against China’s steel products, which is not conducive to the sustained development of the steel export market. Under the new situation, China's steel exports should also change their thinking, and gradually shift from pure price advantage to quality advantage, from a large export number to a strong export quality. In particular, under the new initiative of China's major development of the "Silk Road Economic Belt" and "21st Century Maritime Silk Road", in addition to direct steel exports, it is necessary to vigorously develop domestic high-value-added steel downstream industries, and strengthen the electromechanical and shipbuilding industries. The international competitiveness of such products has shifted from simple price competitive advantage to more emphasis on the added value of products, attracting the attention of foreign customers with more value-added product systems and better product quality.

Slower growth in domestic demand requires new growth

With the declining investment growth, the growth of the infrastructure and real estate industries has shrunk significantly. The contribution rate of the second industry, represented by manufacturing, to economic growth has gradually declined, and the overall demand for the steel industry has slowed down to the low-speed growth range. In the first 11 months of 2014, the total fixed asset investment in the country increased by 15.8% year-on-year, with the growth rate falling by 4.1 percentage points over the same period of last year. Real estate development companies’ fixed asset investment increased by 11.9% year-on-year, 7.6 percentage points down from the same period of last year. Fixed asset investment grew by 13.5% year-on-year, with the growth rate down 5.1% from the same period of last year. The value-added of manufacturing industries above designated size grew by 9.4% year-on-year, also by 1.1% from the same period of last year. In terms of output, the total construction area of ​​real estate development companies in the first 11 months increased by 10.1% year-on-year, which was a 6 percentage point lower than the same period of last year. The output of automobiles in the first 11 months increased by 8.4% year-on-year, which was a decrease from the same period of last year. 9.7 percentage points; the cumulative completion of shipbuilding in the first 10 months decreased by 18.2% year-on-year.

Stable growth measures have continued to increase, and new growth points in the steel industry have emerged one after another. Domestically, since the second half of 2014, the state has intensively approved a number of infrastructure construction projects, relaxed real estate restrictions on purchase policies, and implemented relatively loose monetary policies including targeted reductions in deposit reserve ratios and reductions in deposit rates. Among them, the National Development and Reform Commission has intensively approved 21 railway and airport construction projects with a total investment of nearly 700 billion yuan. There will be 172 major water conservancy projects that will start construction in the next two years, with a total investment of more than 600 billion yuan, plus the construction of urban rail transit around the country. The implementation of the shantytown renovation project will also provide strong support for the growth of domestic steel demand next year. In terms of external demand, as mentioned above, the iron and steel industry is actively seeking development opportunities for “going out”. With the dual advantages of price and quality, it strives to gain stronger competitiveness in the international steel market and is also the focus of future steel demand growth.

Better earnings still need to pay attention to financial status

Although the price of steel products hit new lows, it benefited from the sharp fall in the prices of major iron and steel charge materials such as iron ore and coking coal. As a result, the profitability of China's iron and steel production enterprises did not deteriorate in 2014. However, due to the increase in the banking threshold and the increase in market competition, Problems such as capital, debt, and operating costs are still prominent. The steel industry is still in a “micro-profit” era, and there is a clear division of benefits. According to the financial data of China Iron and Steel Association, in the first 10 months of 2014, 88 key steel enterprises made a profit of RMB 22.256 billion, and the cumulative profit increased by 61.3% year-on-year. It is estimated that the total profit of the steel industry will reach more than RMB 28 billion for the past three years. The new high. However, the average sales profit rate is still low, only 0.75%, which is far lower than the average level of 5.5% for the national industrial sector. There are still 21 steel companies that have suffered losses, with a loss of 23.9%.

The financial status of enterprises still faces some difficulties. According to data from the China Steel Association, as of the end of October 2014, corporate financial expenses increased by 20.7% year-on-year, the capital pressure on companies is still relatively large, operating costs are high; accounts receivable and accounts payable The funds increased by 19.4% and 9.9% year-on-year, respectively, and corporate debt problems remained high. Iron and steel enterprises have insufficient self-owned funds, difficulties in financing and high financing costs have still not been well improved, and banks are generally tight on the financial policies of steel companies. The future financial status of the company still needs to pay attention. The supply of raw materials represented by iron ore is sufficient, and the price is downward, which provides room for the profitability of steel enterprises. Accelerating the efficiency of capital turnover and expanding channels should also be the focus of the company.

The increase or decrease in the volume of iron ore needs to accelerate the reform process

Under the background of the continuous decline in global iron ore prices and the slowdown in the demand growth of major demand countries, the international giants are still in a downward trend to maintain a high-yield strategy. The aim of trying to further monopolize the mainstream iron ore market by increasing production and low prices is gradually clear. . According to statistics, in the third quarter of 2014, Rio Tinto and Vale's iron ore production were 60.45 million tons and 85.73 million tons, respectively, all hitting record highs in the same period in history, and giants' output will continue to grow in the next few years. According to China's commodity price index CCPI data, the price index of mineral products dominated by iron ore at the end of November was 109.7, down 26.6 points from the beginning of the year. According to the statistics of the China Iron and Steel Association, the current average cif price of imported iron ore has fallen to around US$70, a drop of 47% from the beginning of the year, and there is still no sign of bottoming out.

Under the impact of the low price of international iron ore, iron ore enterprises in the domestic market faced relatively great pressure due to relatively high production costs. Some mining companies suffered losses or even closed down. However, the international iron ore supply far exceeds the demand. Major consumer countries should seize this favorable opportunity to obtain iron ore pricing power. From the perspective of protecting the domestic basic resources industry, we must enhance the sustainable development capacity and market competitiveness of China's mining enterprises, and avoid the passive elimination of the domestic iron ore industry. We need to accelerate the reform of the tax and fee reform for the iron ore industry and realize multiple taxes and fees. Straighten out mergers to reduce the level of comprehensive taxation for enterprises; to set up taxation fees, to realize a mediation system that uses tax as the main means of adjustment; to gradually shift from the tariffs to ad valorem taxes, to avoid overexploitation of resources, in line with China’s resource-saving society Transitional development planning.