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

In a recent report released by the National Development and Reform Commission on the 25th, it was revealed that from January to November, China's crude steel output reached 660 million tons. Based on this trend, it is highly likely that the annual crude steel production for 2011 will surpass 680 million tons. However, this surge in production comes alongside a sharp decline in steel prices, which have now fallen back to levels seen 18 years ago. According to the data, from January to November, the country’s crude steel output totaled 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. Meanwhile, steel output reached 870.41 million tons, up 7.2% year-on-year, but with a slowdown of 5.9 percentage points. Despite a sharp slowdown in steel production growth in October, November saw a rebound in output. In November alone, crude steel output rose by 13.7% year-on-year, an increase of 7.7 percentage points compared to October. Steel output also surged by 16.5% year-on-year, with a growth acceleration of 8.7 percentage points. This rise was largely due to a slight recovery in steel prices, prompting mills to utilize spare capacity and boost production. Over the past few years, China has consistently set new records in steel production, leading to severe overcapacity issues in the industry. After peaking in the first quarter of 2011, steel prices plummeted rapidly. For instance, 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, marking a nearly 40% decline. The China Steel Association's comprehensive price index currently stands at about 102 points, almost matching the 100-point level recorded in 1994. This means that after 18 years of development, steel prices have essentially returned to their starting point. At the same time, steel companies are experiencing a significant drop in profits. According to the National Development and Reform Commission, from January to October, the steel industry generated 11.31 billion yuan in profit, a 48.3% decrease year-on-year. Specifically, the ferrous metal mining and dressing sector reported 75.7 billion yuan in profit, down 3.3%, while the iron and steel smelting and processing sector saw a steep drop of 73.7% to 32.2 billion yuan. Although steel prices have slightly rebounded, many mills are using this opportunity to expand production and raise ex-factory prices. Major companies such as Baosteel, Wuhan Iron & Steel, and Angang have announced their January 2013 pricing strategies, including increases for hot-rolled, cold-rolled, pickled, and non-oriented silicon steel products. From a demand perspective, as temperatures dropped across much of the country, construction projects began to slow down, leading to a seasonal low in steel consumption. The earlier price rebound had already encouraged some mill capacity recovery, worsening the oversupply situation in the market. On the supply side, the iron ore market, which had been sluggish, became active near the end of the year. The Platts Index started to recover in September, and the current increase has surpassed 50%. As steel prices recovered slightly, iron ore prices shot up, further pressuring the profitability of steel companies. Shenyin Wanguo Securities noted that there is currently little incentive for steel mills to cut production, and ongoing supply pressure continues to hinder price increases. While the macroeconomic environment appears stable in the short term, any improvement in the fundamentals of steel companies remains weakly supported, especially given the potential "recovery illusion" created by base effects.

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