April 05, 2025

China's steel overcapacity spread to high-end areas

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When the low-end overcapacity in the steel industry was widely criticized, many mid- to high-end production capacity had to lower the "noble head" due to oversupply.

In a recent survey of Hebei Province, a major steel province, the reporter found that under the background of the government's active promotion of industrial upgrading and structural adjustment of the steel industry, steel companies are competing for high-end projects in the middle and high-end projects. High-end "investment boom. What followed was the higher the elimination of steel production capacity, the rapid expansion, and the type of overcapacity that had spread from low-level product duplication to high-level products.

At the "2013 Domestic Iron Ore Industry Chain Summit Forum" held recently, Liu Xiaoliang, secretary general of the China Metallurgical Mining Enterprise Association, also pointed out that according to the reasonable capacity utilization rate of 80%, among the 10 major types of steel products, only galvanized sheets, Bars and steel bars have achieved reasonable capacity utilization, and the production capacity of other steel products is in excess. In particular, the utilization rate of so-called high-end products such as profiles, plate and hot-rolled broadband steel is less than 70%.

High-end projects focus on the horse

Steel companies are targeting high-end products. The reality of the economic downturn has made the demand for high-end products not strong. Finally, high-end steel can only sell at a low price.

In recent years, the high-end production capacity of the steel industry has exploded. According to reports, before the implementation of the "Steel Industry Development Policy" in 2004, there were only 19 sets of rolling mills nationwide, which surged to 86 sets in 2012. The capacity utilization rate dropped from 80% to 59%, and the relationship between supply and demand reversed.

According to my analysis of the steel network, taking the “noble” plate in steel as an example, in recent years, large steel enterprises have made a lot of production capacity. Due to the strong specificity of the product, the market demand is limited, which leads to serious Overcapacity.

At the same time, the hot-rolled coils that have been in high demand for high value-added and inexhaustible, with the change of supply and demand, are now no longer.

A person in charge of a large steel company in Hebei said that in the past few years, due to the impact of the transformation and upgrading of the climate, some steel mills only produce high value-added products, disdain to the general material, but the demand for medium and high-end products is limited, and it is impossible to achieve economies of scale. In the prospect of weak overall market demand, the “noble head” has to be lowered, and the rice bowls of small and medium-sized steel mills have been robbed, resulting in serious homogenization competition. The downstream users saw this situation and used the bidding to lower the price.

After the "transformation and upgrading", the steel industry failed to get rid of the overcapacity and is still on the verge of loss. According to data from the China Iron and Steel Association, the overall operation of the steel industry has been difficult this year. From January to July, China's crude steel output increased by 7.1% year-on-year, while the growth rate in the same period last year was only 2.1%, and the industry average sales profit rate was only 0.23%.

In interviews with some large state-owned steel companies, the overcapacity of steel was mainly attributed to the substantial increase in production capacity of private steel companies. They pointed out that private steel production accounted for only 7.7% of the country in 2000. After more than a decade of development, it reached 48.4% in 2012. The increase in private steel production capacity accounted for the majority of the existing steel surplus capacity, and the concentration of the entire steel industry. Do not rise and fall.

The above situation does exist. A private steel mill owner in Hebei, who has a meeting every week to encourage employees, said that in the past August, the steel mill lost 100 million yuan, but given stability, he would not significantly reduce production.

However, some private small and medium-sized steel enterprises believe that in the scale structure of China's steel industry, large enterprises are the main producers of sheet and strip materials under the guidance of the steel industry policy, while small and medium-sized enterprises are mainly traditional long products and construction materials producers. Differentiated development. From the current situation, the traditional low-end production capacity, that is, long products, construction materials, although the profit is small, but the sales are basically stable, and the so-called high-end sheet and strip has a serious overcapacity.

Deng Qilin, vice president of China Iron and Steel Association, also said that the current overcapacity of China's steel industry is simply not comprehensive with the over-capacity. The real situation should be structural excess. Of course, the steel industry has been extended from the low-end steel sector to the high-end steel sector.

The heads of several iron and steel enterprises producing high-end strips in Hebei Province, who were interviewed by reporters, also admitted that due to the fierce competition in the domestic market and the unprecedented crisis in product sales, the pressure on anti-dumping in export is growing, and new ones must be found. The way out.

The higher the steel production capacity, the higher the elimination

“In recent years, China has stepped up efforts to eliminate backward production capacity, but the speed of new capacity is far greater than the speed of eliminating backward production capacity, so it has brought about the problem of overcapacity.” Miao Wei, Minister of Industry and Information Technology, said.

Over the years, the actual effect of regulating the overcapacity of the steel industry has deviated from expectations, and the phenomenon that the production capacity has been eliminated has become higher.

The reporter learned from the China Iron and Steel Association that the current measurement of the country's steel production capacity is mainly capacity and scale. According to the “Nine major industries to eliminate backward production capacity targets” announced by the State Council in 2010, the steel industry must eliminate 400 cubic meters and below ironmaking blast furnaces, 30 tons and below steelmaking converters and electric furnaces.

There are policies and measures to counter. As the "equipment large-scale" is an important symbol of industrial upgrading, enterprises have to "small and big" in order to survive the threshold, and steel production capacity has not decreased.

In 2009, in response to the economic crisis, China has introduced ten major industrial revitalization plans including steel. The policy encourages enterprises to develop high-end steel products, and the company's steel products are moving toward high-end, terminal, and specialized. Immediately, the steel industry has seen a trend of “resolving the low end on the high end”.

In the view of some industry insiders and industry experts, the administrative approval type steel production capacity control policy has already shown its drawbacks, and has not curbed the rapid expansion of the steel industry's production capacity.

A steel business owner complained to reporters that he imagined that the government organized a group of experts, officials, industry associations, etc., and worked hard to determine which varieties to encourage and which to limit, and from the drafting of the policy to the final The final draft took a long time, and the surrounding environment may change greatly when the written version is released. The varieties that have been encouraged may be over-represented, and the restricted varieties may be encouraged. Other steel business owners pointed out that government departments and industry associations, when they were in the process of production or when they announced the market, over-emphasized the production capacity, and the lack of analysis of supply and demand data of steel varieties caused market signals to fail and investment blindness.

Some experts said that in the past, it was "small and big", and now it is "resolving low-end and high-end". If the country does not strictly control the investment projects of new capacity, the next stage of China's high-end steel market may repeat the old road of disorderly competition.

New capacity to find "big"

Liu Xiaoliang pointed out that the “approval system” policy that the steel industry has implemented for a long time has been unilaterally pursuing large-scale development. The blast furnace, large converter and large plate rolling mills have developed exceptionally, while simply improving the “board-to-tube ratio”, making 90% of large state-owned steel enterprises The production capacity is “plated”.

Some iron and steel business owners interviewed said that in recent years, the government departments have always used "equipment large-scale" as an important indicator of industrial upgrading in terms of investment direction. It seems that as long as high-end products and equipment are available, everything will be fine. Guide enterprises to build more blast furnaces and converters, and at the same time blindly compare with developed countries than "board-to-tube ratio." As a result, large enterprises rushed to the plate production line and abandoned the long product production line, resulting in excessive overcapacity of the plate.

“Plate-to-tube ratio” is the ratio of so-called high-end steel products such as plates and pipes to the total steel output. According to data provided by China Iron and Steel Association, the plate-to-tube ratio of China's steel market is more than 30%, and the plate-to-tube ratio of developed countries has exceeded 50%. .

The heads of some steel companies said that local governments have studied the developed countries in a one-sided pursuit of “board-to-pipe ratio”. Enterprise investment is inseparable from the support of the government and the financial sector, and it is difficult to counter the trend. However, as the overall development of steel downstream industries such as equipment manufacturing has not yet been upgraded to this extent, the demand for high-end varieties is not so strong, and some investments are blind. With the repeated construction of a large number of hot rolling and cold rolling mills, there has been a serious excess of sheet material.

When the reporter recently came to a private steel company that mainly produces plate in Hebei Province, the person in charge, Liu Bo, is worrying about the decreasing orders. In the past, when the long products were produced, the days were still barely passed. In recent years, the product grades were continuously upgraded, and the opportunity to enter the high-end steel production field was unexpected. The competition was even more intense, and now it is losing hundreds of millions of dollars every year. However, there is no turning back on the bow, they are going to put on a galvanized sheet production line, because the traditional low-end projects can not be loaned, the bank also encourages high-end projects.

In this regard, Xu Jindi, chairman of the China Institute of Metals and former president of the Chinese Academy of Engineering, said at the recent high-end forum on China's steel technology economy that the downturn in the steel industry will continue for about five years, and the industry “winter” has just begun. The blast furnace and electric furnace volume, steel variety and enterprise scale are used as standards for eliminating backward production capacity.

High-end investment boom is on the rise

Xu Lejiang, president of China Iron and Steel Association and chairman of Baosteel Group, believes that although China's current steel demand growth rate has dropped significantly, there has not been negative growth, and the peak output has not yet arrived. It is estimated that this turning point and peak are not far away. Five" period.

"Overcapacity in steel production is a kind of 'morbidity' in the process of economic development, and it is necessary to treat the right medicine in time." During the investigation, the reporter heard some experts in the industry make such a metaphor. "Sickness" is mild, moderate and severe, and the "overcapacity" of steel production capacity? The industry has different opinions.

According to the industry, the capacity utilization rate between 75% and 80% is mild overcapacity, between 70% and 75% is moderate overcapacity, and below 70% is severe overcapacity.

According to the China Iron and Steel Association, by the end of 2012, domestic steelmaking capacity was about 976 million tons. At the high-end forum on China's steel technology economy held recently, Xu Kuangdi, chairman of the China Metals Society and former president of the Chinese Academy of Engineering, said that it is predicted that by the end of the "Twelfth Five-Year Plan", China's steel demand will reach 680 million to 712 million tons, equivalent. The demand for crude steel is 716 million to 750 million tons. From the current situation, the expansionary impulse of steel companies is still going on. In 2013, 510 projects were started. If all the above-mentioned construction, design and planning projects are put into operation, China's steelmaking capacity will reach 1.02 billion tons, and the problem of overcapacity is worrying.

A steel company owner believes that the key to calculating capacity utilization is to choose the production base. Now there are several versions in the industry, and real capacity is almost a mystery. Iron and steel project approval is like family planning, the boss is getting a birth certificate, while the second and third are “illegitimate children”, and now they have grown up. The industry is rumored that there are too many "black households" that have not been approved for construction. Only 40% of the country's steel production capacity has been approved, and the other 60% of the production capacity has not been approved. Which capacity figures will not be missed? The steel boss's judgment is that steel overcapacity is currently very likely to be between moderate excess and heavy excess, and needs to be highly vigilant.

However, some experts believe that by analyzing the relationship between capacity utilization and overcapacity, the current steel industry capacity utilization rate is between 70% and 80%, so it can be determined that the steel overcapacity is mild and moderate. between.

Xu Lejiang proposed in a public occasion that there would be no overcapacity in China before 2006. Including high-end production capacity, the steel industry is now in a state of mild excess. "Do not over-demonize the overcapacity problem in the steel industry." Xu Lejiang believes that moderate overcapacity is conducive to full competition in the industry and is beneficial to the demand side. What we need is full competition, but we must avoid vicious competition. The so-called high-end overcapacity that currently appears is actually a short-lived surplus of production. It is an inevitable phenomenon that the development cycle of steel and downstream industries is not synchronized in China's economic restructuring and industrial upgrading.

Yu Yong, general manager of Hebei Iron and Steel Group and chairman of Tangshan Iron and Steel Group Co., Ltd. said that with the rapid growth of the national economy and the rigid demand for steel, the Chinese steel industry has completed the original accumulation process of scale expansion, equipment upgrading and product upgrading. The life cycle of any industry generally has to go through four periods of initial creation, growth, maturity and recession. A general rule of maturity is overcapacity. At present, the steel industry can only gradually solve this problem in development.

Jumping out of the "excess degree" of high-end production capacity, the steel industry has to face up to the problem that the high-end steel sector will usher in more challenges. At present, this high-end capacity investment boom has just begun, and the future investment will not rise or fall. .

Some industry experts believe that the challenges in the high-end steel sector are mainly due to the large number of steel mills that previously produced low-end steel. As low-end steel products gradually lose market competitiveness, a large number of steel mills with low technical strength are eliminated. It is a matter of time before these steel mills continue to increase investment in research and development of production technology and take the opportunity to enter the high-end steel production field. Under this pressure, China's steel industry may not increase its investment in the future.

Market and government role positioning needs to be clarified

In response to the recent “high-end overcapacity” phenomenon in the steel industry, some experts believe that it is crucial to clarify the role of the market and the government in addressing the overcapacity of steel.

Lack of enforcement or selective enforcement is the biggest obstacle to eliminating backward production capacity. Preventing "high-end product surplus" and avoiding the mistakes of low-end overcapacity, the government's hand is not inaction. For example, some steel mills are investing in new production capacity, and there are irregularities such as gradual review and subsequent chaos. How the state effectively curbs this series of violations of unified planning and layout is crucial to the survival of the steel industry in the later period.

Xue Zhimin, deputy director of the Research Office of the Hebei Provincial Government, believes that it is necessary to establish a scientific and strict market access threshold and design an effective exit mechanism. The regulation of steel production capacity should combine EIA standards with taxation, so that enterprises that do not meet energy consumption and environmental protection standards have no profit, and local governments have no tax. According to the national environmental protection standards, the company established a green certification rating and market access system for steel production capacity. On the basis of strictly supervising the energy conservation and emission reduction targets of iron and steel enterprises, the grading environmental tax was introduced according to the high and low emission levels. It can be considered to include all environmental taxes as provincial fiscal revenues, and strengthen the main role of provincial governments in eliminating backward production capacity.

Ge Chazhong, a researcher at the China Academy of Environmental Sciences, said that it is necessary to establish a “steel industry adjustment fund” to reward the environmental protection and technological transformation of the dominant steel enterprises. Prior to this, it is recommended that the state accelerate the construction of an environmental monitoring network for steel companies to provide a scientific basis for the levy of environmental taxes.

An expert from the China Iron and Steel Association believes that it is also important to establish and improve the trading platform for the withdrawal of steel capital. The free entry of capital must correspond to the free exit of capital. China urgently needs to establish a third-party platform suitable for block trades to conduct steel property rights transactions, so that steel capital can be withdrawn from the steel industry. For a long time, most of the mergers and acquisitions in China's steel industry have been achieved under the leadership of the executive. The majority of such mergers and acquisitions are incremental restructuring, and the scale is further expanded. Even if some of the backward production capacity is eliminated during the restructuring process, it will be more More new capacity is covered. The state should introduce relevant policies to encourage steel companies to carry out market-based reduction and reorganization. For the backward production capacity of steel enterprises in the process of merger and reorganization, they can give certain subsidies to enterprises or to tax reductions within a certain number of years.

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