Steel output hit another record steel price this year, 18 years ago

According to data released by the National Development and Reform Commission on the 25th, China's crude steel output from January to November reached 660 million tons. Based on this trend, it is almost certain that the annual crude steel production in 2011 will surpass 680 million tons. Meanwhile, steel prices have dropped back to levels seen 18 years ago. The National Development and Reform Commission also reported that from January to November, the country’s crude steel output was 660.13 million tons, representing a 2.9% year-on-year increase, although the growth rate slowed by 6.9 percentage points compared to the previous year. Steel output for the same period stood at 870.41 million tons, up 7.2%, but with a slowdown of 5.9 percentage points. Despite a sharp slowdown in steel production growth in the previous month, November saw a rebound in output. In November, crude steel production rose 13.7% year-on-year, an increase of 7.7 percentage points from October. Steel output climbed 16.5% year-on-year, with a growth acceleration of 8.7 percentage points. This surge was largely due to a slight recovery in steel prices, prompting mills to utilize spare capacity again. Over the past few years, China's steel production has consistently hit new records, leading to a worsening overcapacity problem in the industry. After peaking in the first quarter of 2011, steel prices fell rapidly. For example, the price of rebar on the Shanghai Futures Exchange dropped from a high of 5,200 yuan per ton to around 3,200 yuan per ton by early September, a decline of nearly 40%. According to the China Iron and Steel Association, the current domestic steel price index is approximately 102 points, very close to the 100 points recorded in 1994. This means that after 18 years of development, China's steel prices have returned to where they were in the mid-1990s. At the same time as steel prices returned to 18-year lows, profits for steel companies also took a major hit. Data from the National Development and Reform Commission showed that from January to October, the steel industry earned 11.31 billion yuan in profit, a 48.3% drop from the previous year. The ferrous metal mining and processing sector saw a profit decrease of 3.3%, while the iron and steel smelting and processing industry suffered a steep 73.7% drop in profits. Although steel prices have slightly rebounded, many steel mills are using this opportunity to expand production and raise ex-factory prices. This month, major producers such as Baosteel, Wuhan Iron & Steel, and Angang announced their January 2013 pricing policies, which include increases for hot-rolled, cold-rolled, pickled, and non-oriented silicon steel products. From a demand perspective, colder weather across much of the country has led to the shutdown of construction projects, pushing steel demand into its seasonal low. The recent price rebound has also encouraged increased production, further exacerbating market oversupply. Looking at upstream costs, the iron ore market, which had been sluggish, suddenly became active near the end of the year. The Platts Index began recovering in September, and the current rise has surpassed 50%. As steel prices recovered slightly, iron ore prices surged, leaving the profitability of steel companies still under pressure. Shenyin Wanguo Securities noted that there is currently little incentive for steel mills to cut production, and ongoing supply pressures make it difficult for steel prices to rise significantly. While the macroeconomic environment shows some short-term stability, the "recovery illusion" created by base effects may not be enough to support a strong improvement in the fundamentals of steel companies.

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