China's Steel Industry in Trouble: Association

Feb. 1 -- China's steel industry was confronted with its greatest difficulties since the turn of the century last year, as the global economic slowdown curtailed demand, an industry association said Thursday.

China's crude steel output grew 3.1 percent to 716.54 million tonnes in 2012, down 5.8 percentage points from a year earlier, the China Iron and Steel Association (CISA) said in a press release.

CISA said its member companies saw profits plummet 98.22 percent to 1.58 billion yuan (about 252 million U.S. dollars) year on year, while total sales dropped 4.31 percent to 3.54 trillion yuan.

Last year, 28.75 percent of its member companies reported losses, the association said.

Fixed-asset investment in the sector increased 2.97 percent, dropping 12.54 percentage points from the previous year.

Prices for steel products experienced a downward trend.

By the end of last year, the composite steel price index for the overseas market, which is issued by CISA, dropped 6.3 percent from a year earlier, while the index for the domestic market dived 12.57 percent, the association said.

The steel industry faced an extremely difficult situation in 2012, as an economic slowdown in China and the rest of the world curtailed market demand and resulted in flagging steel prices, the association said.

China's GDP grew 7.8 percent year on year to reach 51.93 trillion yuan last year, the slowest growth rate since 1999, according to the National Bureau of Statistics.

Slowing economic growth has decreased steel demand from downstream industries, such as the railway construction, property development and shipbuilding sectors, the association said.

Meanwhile, China's steel sector still has excessive production capacity, which has caused steel output to greatly exceed market demand.

As a result, steel producers competed fiercely to boost their sales, which in turn resulted in steel price decreases, the association said.

"The steel industry experienced its greatest difficulties since the beginning of the century," the association said.

High prices for imported iron ore also eroded steel companies' profitability last year.

"Although steel prices remained at a low level in 2012, prices for iron ore imports tended to climb as soon as steel prices saw even a slight rise, and at a much greater margin," the association said.

Last October, the association's steel price index inched up just 2.9 percent month on month, while order prices for imported iron ore surged 15.9 percent from their lowest level in September, it said.

The difficulty and high cost of obtaining loans, burdens created by taxes and fees and a lack of self-discipline in the sector have added to the sector's current troubles.

Since China's economy is showing signs of stabilization, CISA forecast that the industry will face a better environment this year and that demand for steel products will rebound to some extent.

The economy's growth rate quickened to 7.9 percent in the fourth quarter last year, ending a seven-quarter slowdown and increasing from 8.1 percent in the first quarter, 7.6 percent in the second and 7.4 percent in the third, respectively.

"However, the industry should not underestimate the difficulties and challenges that may appear this year," the association said.

The industry should prioritize the elimination of excessive capacity and strengthen monitoring of performance and trends, as well as enhance self-discipline, to avoid vicious competition, the association said