Bleak Outlook for China's Steel Industry... Sharp Profit Decline and Overproduction Lead to 'L-Shaped Recovery'

The world's largest steel industry in China is experiencing fluctuations due to the economic downturn and the real estate market crisis. The industry appears to be closely monitoring whether production restrictions will be imposed this year.

According to the China Iron and Steel Association on the 30th, the operating profit of the association's member companies from January to November was 78.8 billion yuan (approximately 14.5851 trillion KRW), a sharp decline of 23.92% compared to the same period last year, and the average operating profit margin of member companies was only 1.32%. Last year, the total crude steel production was 1.019 billion tons, an increase of about 1 million tons compared to the previous year, but crude steel consumption during the same period was only 940 million tons. Imports of iron ore and concentrates amounted to 1.1799 billion tons, an increase of 6.6% compared to the previous year.

[Image source=AFP Yonhap News]

Due to overproduction, steel prices have fallen, and companies are going through a harsh period. On the other hand, the price of iron ore, which accounts for 40% of steel production costs, remains stagnant. Although China's steel production accounts for more than half of the world's steel production, there is a structural problem of relying on imports for more than 60% of the iron ore needed for steelmaking.

Chinese economic media Caixin reported that the annual average price of imported iron ore in China was $113.6 per ton (approximately 151,088 KRW), a decrease of only 1.8% compared to the previous year. Meanwhile, the annual average price of rebar fell by more than 10%, and the price of cold-rolled steel sheets also dropped by 8.5%. A steel industry employee told Caixin, "Currently, we are barely surviving by operating at a loss." A securities industry analyst added, "Iron ore prices are supported by fundamentals and cannot fall further due to the influence of speculative capital."

Jang Rongchang, director of the Metal Industry Information Standard Research Institute, said, "Unlike the past steel prices that rebounded in a V-shape, the current market downward trend will enter an L-shaped cycle," and predicted, "Future steel demand will maintain a long-term level of 900 million to 1 billion tons."

The market is paying attention to whether the industry will enter production restrictions, as was the case during past oversupply and price declines. Caixin quoted Director Jang saying, "Many expect production restrictions, but whether they occur depends on China's economic recovery," adding, "The effect of crude steel production regulation tends to weaken, and adjustment and optimization are needed."

This content was produced with the assistance of AI translation services.