Financial News Agency, December 18 (Reporter Zhang Liangde) Faced with an industry environment where overcapacity and demand are insufficient, finished materials are falling and the cost of finished materials is high, steel prices continued to fall in 2023, causing steel companies' profits to shrink sharply. Although markets such as exports have increased, the overall supply and demand pressure on the market is still quite obvious.

At the China Steel Market Outlook and “My Steel” annual conference held over the weekend, some participants said that in 2023, China's steel consumption structure was continuously optimized, the proportion of steel consumption in the manufacturing industry continued to rise, and the steel market showed strong resilience, but the profit situation in the steel industry continued to narrow, and the industry's profit situation was close to the bottom of history. It is expected that demand in some market segments may continue to improve in 2024, but the downward trend in total demand will not change in the future, and steel companies will still face great operating pressure.

He Wenbo, Party Secretary and Executive Chairman of the China Iron and Steel Association (Photo Credit: My Steel)

Changes in the structure of steel consumption in 2023, and steel companies' profits are almost at the bottom of history

“The sales profit margin of the steel industry (smelting and rolling processing) in 2023 is in the bottom of the major industrial industries. The loss area of the steel industry has also increased dramatically, and the profit per ton of steel is minimal, almost the worst level in history.” Wang Jianhua, chief steel analyst at Shanghai Steel Union E-Commerce Co., Ltd., made this summary when reviewing the outlook for the Chinese steel market and the business situation of the industry in 2023 at the “My Steel” annual conference.

Wang Jianhua said that what is gratifying is that demand in 2023 does not include the 20-30% decline that professionals have said all year round. According to January-October data from the Bureau of Statistics and Customs, the apparent consumption of crude steel for the year was about 942.96 million tons, a year-on-year decrease of 2.2%; according to the January-October data from PTDY and Customs, the apparent consumption of crude steel for the whole year was about 998.23 million tons, an increase of 1.8% over the previous year, and a 3.5% increase in consumption in 2022 calculated by the Bureau of Statistics and Customs. What is really surprising is that the growth rate of steel exports (up 35.6% in the first 11 months) was significantly better than the performance of domestic demand, greatly relieving domestic supply pressure.

Looking at various market segments, the consumption structure of the steel market changed markedly in 2023. The supply and demand for construction steel both declined markedly, but demand in sectors such as medium and heavy plates and automobile boards increased.

Wan Chao, a construction steel analyst at the Shanghai Steel Union Group, analyzed that in 2023, due to the increasingly clear international situation and the lack of favorable domestic industrial policies, investment flows began to shift markedly. The manufacturing industry was stronger than infrastructure and housing construction.

This is mainly reflected in the fact that construction steel market costs have been high for a long time, profit margins have been low for a long time, rebar companies' production profit declined year on year, construction steel turnover improved month on month, and a slight decrease year on year; cumulative rebar production fell sharply year on year, and total rebar inventory fell 1.26% year on year, and the removal rate exceeded expectations.

The biggest reduction in demand in the steel industry in 2023 was for construction steel, while the biggest increase in domestic demand was in the medium and heavy plate market.

Yang Xue, a medium and heavy plate analyst at the Shanghai Steel Union, said that the price performance of medium and heavy plate in 2023 was quite impressive, and iron and steel favors the production of medium and heavy plate varieties with better profit. Driven by good variety board orders and exports, consumption is resilient, and the effects of dewarehousing are remarkable. Market sentiment has improved slightly and price fluctuations have intensified. At the same time, combined with the stimulus of production restriction policies, the supply and demand pattern will still change, and profit margins will expand.

However, looking at the entire industry chain, the upstream and downstream profit distribution of the steel industry in 2023 was uneven, and steel companies did not receive due profit margins in the entire industry chain. “Chinese steel companies have 'fertilized' overseas mines, subsidized overseas downstream users, and suffered for themselves.” Wang Jianhua gave this summary of the overall operation of the steel industry chain in 2023.

In 2023, as exports exceeded expectations, overall steel production did not drop significantly, driving both iron ore supply and demand to increase. Driven by macro-level expectations and high deposition rates, iron ore prices are high, while coking coal prices are also at historically high levels. Most of the profits in the steel industry chain are eaten up by upstream raw fuels, and steel companies' profits are meager.

Some industry insiders believe that the imbalance between supply and demand is the main cause of the current operating difficulties of steel companies. Zong Weidong, deputy general manager of Shaanxi Iron and Steel Group Co., Ltd., called on steel companies to respond positively to the call, promote self-discipline in the industry, and reduce disorderly competition and unnecessary bloody production.

In 2024, demand from various sources is expected to improve, and the overall operating pressure on steel companies may still be high

The industry expects that demand in the steel market will improve in some areas in 2024.

On the one hand, the steel used in the shipbuilding market will continue to grow. Among them, the use of 304 stainless steel sheets, high-strength low-temperature steel, and anti-fracture plates for large container ships, including nine-nickel steel and high-manganese steel, will continue to increase. Tan Naifen, Deputy Secretary General of the China Shipbuilding Industry Association, said, “Currently, the first orders from mainstream shipyards are basically scheduled to 2027 and 2028. Shipowners have ordered a large number of dual-fuel ships that meet green and environmental protection requirements to promote the growth in ship demand. Based on this, it is expected that marine steel will continue to grow steadily over the next 3-4 years, with annual steel consumption between 13.5 and 14.5 million tons.”

Overall demand in the medium and heavy plate market will also continue to increase. Looking ahead to industry demand in 2024, Yang Xue said that with the country's vigorous promotion of prefabricated buildings and new energy power generation, the economy has great potential for economic recovery and the implementation of a large amount of infrastructure investment. With projects rushing up, it is expected that the bottom of the construction machinery industry will rise slightly in 2024, steel structures will grow steadily, and the shipbuilding industry will rise slightly. Demand for medium and heavy plates in industries related to infrastructure and new energy will be driven slightly positively.

Thanks to the development of infrastructure construction and prefabricated housing construction, as well as the promotion of steel structures, steel structure market demand is also on the rise. Liu Yi, executive vice president of the China Steel Structure Association, said that according to estimates by the China Steel Structure Association, the steel structure processing volume is expected to reach 140 million tons by 2025; by 2035, the steel structure processing volume is expected to reach 200 million tons.

Wang Jianhua expects both supply and demand in the domestic steel industry in 2024: on the supply side, crude steel production is expected to increase steadily by 1 to 5 million tons in 2024 (compared to 1,028 million tons of data from the Bureau of Statistics). On the demand side, crude steel demand is expected to increase slightly by about 19 million tons year-on-year in 2024 (based on data from the Bureau of Statistics). From a structural point of view, 2024 continues to be optimistic about the growth of steel demand in new energy, steel structures, shipbuilding and other industries.

However, in terms of exports with the biggest increase in 2023, Wang Jianhua expects direct steel exports to decrease by 10 to 15 million tons year-on-year in 2024 due to restrictions that are likely to be affected by overseas anti-dumping, carbon tariffs, investigation and punishment of purchase trade, and increased overseas supply.

The majority of practitioners are still conservative in their views on market demand in 2024. Xia Xiaokun, co-president of the Shanghai Steel Federation, said that according to the results of the previous Shanghai Steel Union survey questionnaire, it is believed that the proportion of real estate steel demand falling is close to 70%, and most respondents believe that the industry may cut production in 2024.

Zhang Qiusheng, chief analyst and senior engineer of Nanjing Iron and Steel Co., Ltd., expects the steel price center to decline slightly in 2024. The average price of rebar is estimated to be 3,900 yuan/ton, with a range of 3,500 yuan/ton to 4,400 yuan/ton. Hot coils are expected to increase by 100 yuan/ton on the basis of threads. The cost of raw fuel will remain high, and it is expected that 50% of steel mills may be at a loss next year.

Huang Jianzhong, senior manager of the strategic planning department of China Baowu Iron and Steel Group Co., Ltd., believes that the steel industry has problems of overcapacity and mismatch between supply and demand, and that policy interference should be reduced appropriately to allow the market to play more role. It is expected that 2024 will be due to the Economic Work Conference proposing a series of policies for steady growth next year; the downturn in the industry will guide the industry to self-regulate production; and the Federal Reserve will begin an easy monetary policy. The cost of steel will not drop drastically every year, but the bearing capacity of the downstream industry has improved compared to this year.