Where is the root cause of the steel industry? How long can it last?
Date:2019-07-24 View:711 Tag:Where is the root cause of the steel industry? How long can it last?
1. Where is the root cause of the difficulties in the steel industry and how long can it last?
In recent years, the economic benefits of the steel industry have been at the end of various industries. In the past, it was generally believed that it was mainly caused by three major factors: first, high mine prices, second, market shrinkage, and third, overcapacity. The facts since this year have once again raised doubts about these views.
- About the price of imported ore. At the beginning of the year, it was 133 US dollars, and it dropped to 80 US dollars at the end of September, a drop of 40%. The steel industry did not get out of trouble due to the sharp price cut of ore.
- About market demand. From January to August, the consumption of crude steel was 500 million tons, which was only 1.72 million tons less than the same period of last year, down 0.3%. The steel consumption only entered the “high period” from the “peak period”, the market did not shrink, and the steel efficiency still deteriorated. Looking back at the “four trillion” investment period in 2009, the consumption of steel in the same year was 110 million tons, an increase of 25.6%, but the steel efficiency was greatly increased, and the sales profit rate was only 2.4%.
- About overcapacity. In recent years, there are almost no surplus industries in China, but the benefits vary greatly. In the first half of this year, the automobile industry's capacity utilization rate is about 70% (90% of joint ventures and 58% of domestic brands). The sales profit rate of the whole industry is very high, 9.32%; the capacity utilization rate of equipment manufacturing industry is 75%, and the sales profit rate is 6.85. %...., these industries are overcapacity in the steel industry, and the profit margin is much higher than steel.
The apparent reason for the steel industry's troubles is that steel prices continue to decline. For example, in the past two years, the cumulative price dropped by more than 1,000 yuan. From January to August this year, wire rod prices fell by 497 yuan; rebar fell by 531 yuan; plate decreased by 399 yuan. Yuan; hot rolled coil fell 403 yuan. At present, the overall average price of steel products has dropped by more than 300 yuan year-on-year, a drop of more than 11%.
The key question is why the market cannot adjust the supply and demand relationship to balance prices? Why do the upstream and downstream make money, only the steel price transmission mechanism fails, and has been declining year after year? Analysis of the operating conditions of the steel industry can be found in the steel market has a huge "price funnel", which is under the current system and mechanism, some long-term serious loss-making enterprises and loss-making products or marginal producers and marginal products, do not hesitate Losing money or relying on subsidies to seize the market, damage the relationship between supply and demand, and constantly suppress the price of steel, resulting in low efficiency or even loss of industry.
According to the statistics of enterprises with an annual output of more than 5 million tons of steel, there were 7 large-scale enterprises that suffered serious losses last year and continued to lose money from January to August this year, with a total output of 86 million tons of steel, calculated at an annualized volume of 130 million tons. Huge loss-making products occupy the market for a long time, which will have a significant impact on supply and demand and steel prices. Seriously losing enterprises do not cut production and stop production. Although there are many factors, the root cause is that the government excessively intervenes in enterprises and enterprises to adapt to the market environment under the new normal.
The fundamental way out for the steel industry to get out of the predicament is to implement the decision of the Third Plenary Session, accelerate the reform of the relationship between the government and the market, deepen the reform of state-owned enterprises, and eliminate the outstanding institutional and institutional obstacles in the steel industry. It can be said that when the deepening of reforms is completed, it is the day when the steel industry really gets out of the predicament. This is a difficult task. The steel industry may have to go out of the woods with the process of deepening reforms. We must have sufficient mental preparation.
2. Will the price of imported ore continue to drop?
Under the trend of iron ore price reduction, large-scale mines represented by the three major international mines are adopting new strategic measures to continuously expand production capacity and expand market share. In the near term, the goal of these strategic measures can make up for the losses caused by the price reduction of ore. In the long run, a large number of high-cost mines at home and abroad can be squeezed out, and the right to speak and the right to act for the final pricing of ore can be created. Market environment. International large-scale mine expansion measures are summarized:
First, more focus on reducing costs. The three major mines rely on resource advantages to accelerate the expansion of production scale amortization costs and increase cost competitiveness and economies of scale.
According to reports, in the first half of this year, Rio Tinto's iron ore output increased by 10% year-on-year to 139 million tons, and the annual target is expected to be 295 million tons, an increase of 11%; BHP's ore production in the first half of the year increased by 20.8% year-on-year to 106 million tons. It is expected to reach 245 million tons in the whole year; the ore production in Brazil's Vale increased by 11.1% in the first half of the year to 151 million tons, which is expected to reach 312 million tons in the whole year. It is estimated that the capacity will reach 460 million tons after the completion of the new project in 2017.
These mines with high-quality resources and relatively perfect production conditions have shown obvious economic benefits in the expansion. According to reports, BHP Billiton achieved a net profit of US$13.4 billion in the 2013/14 fiscal year, up 23% year-on-year; Rio Tinto achieved a net profit of US$4.4 billion in the first half of the year, up 156% year-on-year.
The second is to pay more attention to optimizing the investment structure. The three major mines are working to adjust the investment structure and focus on the development of iron mining. BHP Billiton has divested resources such as aluminum, manganese and nickel to focus on the development of resources such as iron ore and coal to increase cash flow and return on investment; Rio Tinto plans to sell Canadian iron ore and some of Australia's coal resources. According to the analysis, this will further increase the profit of Rio Tinto's iron ore business; Brazil's Vale is also actively divesting non-core assets to ensure that core assets are adequately funded.
The third is to pay more attention to reducing capital expenditures and centrally supporting mine development. In the 2013/14 fiscal year, BHP Billiton cut its capital expenditures to US$15.2 billion. It is expected to fall to US$14.5 billion in 2014/15. The funds will increase the production capacity of iron ore from the current 270 million tons to 290 million tons. Rio Tinto's capital expenditure in 2014 will drop to 9 billion US dollars, reduce 2 billion US dollars, and spend about 8 billion US dollars per year after 2015, so as to concentrate on expanding low-cost mines. By 2015, the annual production capacity of iron ore will reach 330 million. Tons, reaching 360 million tons by 2017; Vale's capital expenditures in 2012 was 16.2 billion US dollars, and in 2013 it was reduced to 142 US dollars. In 2014, it was further reduced to 138 US dollars to support the development of iron ore.
At present, there is a situation of oversupply of iron ore, which has ushered in the long-awaited price reduction trend of steel mills. At the same time, however, domestic mines, especially small and medium-sized mines, which account for about 80% of domestic mines, have been shut down for production. At present, China's ore dependence on minerals has reached 77%, and continues to climb to 80%. This is a dangerous signal! If domestic mines continue to stop production on a large scale, international large-scale miners have a greater right to talk, and then, the price of imported ore can continue to decline!
The quality and cost of resource products are basically natural endowments. China's iron mines, regardless of their quality and cost combined with excessive taxes and fees, are in an obvious disadvantage in the international arena. According to the survey of international authoritative research institutions, in 2013, among the 36 major iron ore producers in the world, the average cost of iron ore in China is the highest, ranking the last; in the top 325 major iron ore mines in the world, the top 130 There are no Chinese mines; in the last 130, there are 118 mines in China, accounting for 90%. Therefore, we must consider how to maintain a certain market share of domestic mines in order to play a role in suppressing the price of imported ore. To this end, the steel and mining industries have repeatedly recommended that the state implement a policy of reducing excessive tax burdens on domestic mines to improve the viability of domestic mines, especially small and medium-sized mines. According to recent news, under the organization and guidance of the Ministry of Finance and Taxation and the State Administration of Taxation and other relevant departments, the "Research on the Reform of China's Iron and Steel Industry Finance and Taxation Policy" has been carried out. The policy plan proposed in the report is conducive to the development of domestic mines and is conducive to stabilizing the price of imported ore. The long-cherished wish of the steel and mining industry is likely to be realized in the near future.
3. Where is the source of the profit increase under the new normal?
There are many factors in improving the economic efficiency of iron and steel enterprises, and what are the most basic and most dynamic long-term factors? According to the analysis of several major steel products of 55 steel enterprises (excluding Baosteel and Taigang Stainless Steel), the enterprises with the highest sales price and the corresponding manufacturing costs are compared with the enterprises with the lowest sales price and the corresponding manufacturing costs (see The following table):
The above data shows that in the same kind of products, the cost gap is not very large, about 100 ~ 250 yuan / ton, and the price difference is very different: wire price difference of 1185 yuan / ton; plate thickness difference of 1062 yuan / ton; hot rolled coil phase difference 382 yuan / tonne. The key to the price difference lies in the technical content and quality grade and quality stability. This shows that the technical content and quality value of steel is the biggest source of corporate profits.
In the process of transformation and upgrading of iron and steel enterprises, it is necessary to re-examine some of the customary concepts and management mechanisms that have been formed in the past decade to sacrifice quality, excessively pursue production, and excessively reduce costs. It is not advisable to over-pursuit the lower the consumption index, the better the output, the better the quality, and it is not suitable to use low-quality low-cost ore. According to the quality requirements of users, standardization operations should be carried out to improve the stability and uniformity of quality, so that users can win the market with “reliable steel”.