Financial Association News reported on October 31 (Reporter Zhang Liangde) that the steel industry seems to be stuck in a "prisoner's dilemma." With reduced demand for steel end products, the existing market supply-demand balance has been disrupted. The industry continues to operate at high production levels, making it difficult for steel companies to proactively reduce production. The market supply-demand structure continues to remain suboptimal, leading to worsened losses in the third quarter, with the total quarterly losses of listed steel companies approaching the annual losses of the previous year.

Xu Xiangchun, the Director of Information at Shanghai Ganglian E-commerce Holdings, told Financial Association News reporters: "The main reason for the significant losses in the industry in the third quarter is the steel industry's own overcapacity, lack of self-discipline, and the eagerness of companies with capacity to produce more. Once production is increased beyond market demand, it leads to oversupply of products and a decline in steel prices."

Profit situation of listed companies in the steel smelting industry in the third quarter (Data Source: Third-quarter reports of listed companies)

Currently, all listed companies in the steel industry have disclosed their third-quarter financial reports. The non-recurring net profits of listed companies in the steel smelting industry in the third quarter all decreased year-on-year, with 21 out of 27 listed steel smelting companies reporting non-recurring net profit losses, totaling over 14.5 billion yuan. In the third quarter, 18 out of the 27 listed steel smelting companies experienced net profit losses attributable to the parent company, totaling over 14 billion yuan, while the total net profit of steel companies for the entire previous year was a loss of 15.8 billion yuan.

Specifically, Angang Steel (000898.SZ) reported a non-recurring net profit loss of 2.414 billion yuan in the third quarter, Bengang Steel Plates (000761.SZ) reported a non-recurring net profit loss of 1.707 billion yuan in the third quarter, and Maanshan Iron & Steel (600808.SH) reported a non-recurring net profit loss of 1.386 billion yuan. Only 6 main profit-making steel companies had a total profit of approximately 3.3 billion yuan.

The losses in the steel industry deepened in the third quarter. Data from the National Bureau of Statistics shows that in the first 9 months of 2024, the black metal smelting and processing industry incurred losses of 34.1 billion yuan, a decrease of 256% year-on-year.

Baoshan Iron & Steel (600019.SH) stated that the main reason for the profit decline in the third quarter was that steel prices fell more than raw material prices during the reporting period, leading to sustained profit margin compression.

According to the statistics bureau data, from January to September 2024, the black metal smelting and rolling processing industry achieved revenue of 5842.6 billion yuan, a 6.0% year-on-year decrease; the cost of goods sold was 5655.55 billion yuan, a 5.1% year-on-year decrease. According to data from Steel Union, the Tangshan billet comprehensive absolute price index fell all the way from 3343 yuan/ton at the beginning of the third quarter to a low of 2781 yuan/ton on September 6, with a maximum decline of 16.81%; the coking coal price index dropped from 1681 yuan/ton at the beginning of the quarter to 1407 yuan/ton on August 26, a maximum decrease of 16.30%, slightly less than the decline in steel prices, and the prices bottomed out and rebounded earlier than steel prices; the Caofeidian Port Australia 58% Fe spot price index fell from 750 yuan/wet ton at the beginning of the quarter to 632 yuan/wet ton on September 23, a decrease of 15.73%.

According to the changes in the prices of finished products and raw materials, it is indeed the case that steel prices have fallen more than raw material prices. Xu Xiangchun believes that the main reason for this situation is: 'Although steel prices have fallen, steel production at the mills has not decreased significantly, which means that demand for raw materials has not decreased much. The strong support of raw material prices has caused the decline in steel prices to exceed the decline in raw material prices, accumulating contradictions continuously, narrowing the profit margin for steel mills.'

Industry insiders believe that the steel industry is in a so-called 'prisoner's dilemma.' Xu Xiangchun stated that although crude steel production decreased in the third quarter, it was a passive reduction. When products continue to operate at a loss, enterprise cash flow for operations begins to have problems, and the market forces are forcing reductions. What the industry needs is proactive reductions to help stabilize steel prices.

Xu Xiangchun believes: 'There are various reasons why proactive reductions are difficult to implement, including reasons within the companies themselves, as well as economic growth pressures at the local level. They are reluctant to let steel plants reduce production further.'

Although the third quarter saw a record high amount of losses for listed steel companies, by late September, under the influence of favorable economic policies in China, steel prices rose significantly, and the profitability of steel companies has improved. Many in the industry believe that the issuance of favorable policies will have a significant role in changing the market's original expectations, restoring market confidence. Signs of stabilization in the real estate sector have emerged, and the activity in the capital markets has increased. However, it will take some time for the actual boost in steel demand after the stabilization in the real estate sector.