“As China’s economic development enters a new stage, the pattern of high-speed economic growth in the past has changed to a model of pursuing high-quality development, and investment is no longer the main driving force driving the economy. In the long run, China’s steel consumption will enter a platform area. Steel demand will show a steady trend.” On August 29th, Luo Tiejun, vice president of China Iron and Steel Association, held the second member meeting of Sichuan Vanadium and Titanium Steel Industry Association and Sichuan Iron and Steel Co., Ltd. sponsored by Sichuan Vanadium and Titanium Steel Industry Association. Said at the Summit Forum (2019).
Luo Tiejun pointed out that this year is the fourth year of supply-side structural reform. The steel industry has achieved very great results in the past four years, but at the same time some new problems have emerged. Since the beginning of this year, China’s macroeconomic situation has been generally stable, and the steel industry’s production and investment have also shown a rapid upward trend. He reminded steel companies that under the current situation, they should pay attention to grasping the consumption rhythm of the southwest market and pay attention to controlling the scale of production capacity.
A series of policies are taking effect
Luo Tiejun pointed out that in the first half of this year, China’s economic growth has maintained a generally stable, stable and progressive development trend, but it still faces greater economic downward pressure, and external uncertainties are also increasing, especially since last year. The US trade situation has continued to ferment and has also tested the affordability of our economy.
In response to these pressures, the central government has issued a series of policies and continued to increase its implementation, including active fiscal policies, prudent monetary policies, and employment priorities. These policies are gradually taking effect, and the effect is expected to continue to appear in the second half of the year. Luo Tiejun said that overall, there is pressure on economic operations, but we must also strengthen our confidence and achieve steady economic growth.
Significant growth in investment in the steel industry requires attention
Luo Tiejun pointed out that since the beginning of this year, steel production has shown a rapid growth momentum. From January to July, the country’s crude steel output reached 577 million tons, an increase of 9.0% year-on-year, a downward trend. Among them, steel associations’ crude steel output increased by 5.4% year-on-year, non-member enterprises increased by 20.9% year-on-year, and the growth rate of non-member enterprises was much larger than that of member companies.
From January to July, China’s steel imports and exports showed a double decline. The cumulative export of steel products was 39.97 million tons, down 1.12 million tons, down 2.9%; the cumulative import of steel was 6.66 million tons, down 1.03 million tons, down 13.4%.
Recently, steel production has continued to be high, consumption has entered a seasonally low season, and steel social inventories and corporate inventories have shown an upward trend. The overall price of steel products showed a downward trend. From January to July, the average comprehensive price of CSPI steel was 109.48 points, down 5.54 points year-on-year, a decrease of 4.86%. Steel prices are close to the full year* low, and long product prices have fallen below the * low. However, Luo Tiejun also stressed: “January to July, ferrous metal smelting and rolling processing industry investment increased by 37.8%. In the context of the decline in industry efficiency, industry investment is still growing substantially, should cause the attention of the whole industry.”
Steel production increments in the previous July were used to meet domestic demand
Since the beginning of this year, the steel output has increased by a large margin, which has become a relatively negative topic frequently discussed inside and outside the steel industry and at home and abroad, affecting public cognition and public policy formulation. Luo Tiejun stressed that we must recognize the relationship between production and demand.
“China’s steel industry is a fully competitive industry and is driven by demand. The level of steel production is not determined by steel mills, but by market demand.” Luo Tiejun pointed out that “according to statistics, the first seven Monthly steel production increased by 47.72 million tons, and net exports decreased by 190,000 tons, which means that the increase is used to meet domestic steel demand, of which 2/3 is used to meet the demand increase in the construction sector.”
Since the beginning of this year, the unexpected performance of the real estate industry has greatly stimulated the demand of the steel industry, and the Chinese steel industry has met the supply requirements for steel materials in the construction of the national economy. If there is no high growth in steel production, the current construction scale cannot be achieved, and it is unrealistic to rely on a large amount of imported steel. However, Luo Tiejun also pointed out that in the long run, China’s steel consumption will enter a platform area, steel demand will show a steady trend. Therefore, restricting new capacity is not only a requirement of the government, but also a common voice in enterprises and industries. For areas such as Sichuan where consumption is relatively closed, we must pay more attention to capacity control.
Environmental protection and production restrictions must be differentiated
Luo Tiejun said that the implementation of ultra-low emissions is a necessary measure for the green development of the steel industry, and the phased production limit in some areas is also a last resort’s protective measures. In the process of limited production, it is crucial to implement differentiated management for enterprises with different environmental protection levels. The incentive mechanism is inclined to those enterprises with advanced environmental protection levels.
“According to some iron and steel enterprises with large environmental protection investment, in order to achieve ultra-low emissions, the environmental protection operation cost has reached the level of 260 yuan to 270 yuan per ton. These enterprises should be protected, and environmental protection and production should be differentiated.” The iron army stressed.
According to the newly issued “Guiding Opinions on Strengthening Heavy Polluted Weather Responses to Resolve Emergency Emission Reduction Measures”, the steel industry will adopt differentiated emergency measures. Iron and steel enterprises are divided into three levels according to performance: A, B, and C. In principle, A-level enterprises do not act as key enterprises for emission reduction during heavy pollution, and reduce the frequency of supervision and inspection of such enterprises; B and C enterprises are based on different warning levels. Sintering machines, pelletizing equipment, coke ovens, and blast furnaces perform different production-restriction ratios.
Pay attention to the consumption rhythm of the southwest market
Since the introduction of the national western development strategy, the southwest region has developed rapidly, and investment has become the main driving force for the economic development of the western region. For example, the investment/GDP ratio of Sichuan Province exceeds 80%, and the investment/GDP ratio of Yunnan and Guizhou exceeds 100%. In recent years, the proportion of western infrastructure investment in the nation’s infrastructure investment has shown a growth trend, and infrastructure construction has also achieved great development, but there is still a large gap compared with the eastern region.
“In the future, there will still be room for growth in infrastructure construction and urbanization in the western region, and there is a great potential for demand for steel. The steel consumption in this region is mainly based on construction steel, and the plate accounts for a relatively small proportion.” Luo Tiejun pointed out that “the future will follow The industry in the region will gradually upgrade, the proportion of construction steel consumption will decrease, and the proportion of sheet metal will increase. Due to the special location in the southwest region, the development of electric furnaces has a comparative advantage.”
China’s electric furnace steel accounted for a relatively low proportion, only 9.8% in 2018. At present, China’s scrap steel reserves are about 10 billion tons. In 2018, the country’s scrap resources reached 220 million tons. The continuous increase in scrap stocks has created conditions for the development of electric furnace steel in the southwest. “But everyone should pay attention to controlling the scale of production capacity and avoid falling into overcapacity and scrambling for scrap steel,” he stressed.
“Southwest China has always been a net inflow of steel in China. In the past few years, the competition in the southwestern market has been fierce. It has once become a national price for steel. In this case, industry associations and steel mills in the region have taken the initiative to strengthen self-discipline and achieved positive results.” Luo Tiejun said, “Sichuan is a large steel market in the southwest region. In order to maintain the smooth operation of the steel market in the region, the Sichuan Vanadium and Titanium Steel Industry Association has played an important role. It is hoped that the Sichuan Vanadium and Titanium Steel Industry Association will continue to strengthen its steel enterprises in the future. The steel association’s communication and liaison to jointly maintain the smooth operation of the steel industry.”
Post time: Sep-07-2019