[SMM Analysis] Steel Profits After a "Roller Coaster" Ride: The Transformation Path into a New Normal of Meager Profits

[SMM Analysis] Steel Profits After a "Roller Coaster" Ride: The Transformation Path into a New Normal of Meager Profits

From 2015 to the present, China's steel industry profits have undergone roller-coaster-like changes, mainly divided into three stages: deep losses and recovery (2015-2017): In 2015, the industry faced severe difficulties, with profit per metric ton of steel turning negative at one point. Subsequently, benefiting from supply-side structural reforms, over 150 million mt of outdated capacity was forcefully eliminated, improving the market supply-demand relationship and leading to a rapid profit rebound, reaching a historically relatively high level in 2017. This was followed by a period of volatility and super profits (2018-2021): Industry profits remained at relatively high levels for several years, especially in 2021, when, influenced by multiple factors including global demand recovery and rising raw material prices, profit per metric ton of steel soared to a historical peak, resulting in a "super profit" market. Finally, the period of sharp decline and the era of meager profits (2022-present): Starting in 2022, the market situation deteriorated sharply. Multiple unfavorable factors, including severely shrinking demand from downstream industries like real estate, persistently high production costs, and continuous turbulence in the international market, converged, causing profit per metric ton of steel to plummet. Currently, the steel industry mostly operates with meager profits or even faces periodic losses, forming a stark contrast to the situation several years ago.

Average Profit Per Metric Ton of Steel for Key Chinese Enterprises (yuan)

Observing the net profit fluctuations of listed Chinese steel enterprises over the past five years, it almost replicates the industry's complete cycle from super profits in 2021, to a cliff-like drop in 2022-2023, and then to deeply entrenched losses or meager profits in 2024. While most steel enterprises achieved substantial YoY profit growth or turned losses into profits this year, which also aligns with the judgment that the industry is at an inflection point of profit recovery. Enterprises with high-end product structures, represented by CITIC Special Steel, are still able to maintain stable profitability. This is also consistent with the earlier predictions of "stronger flat products and weaker long products" and "significant advantages for leading enterprises."

Net Profit of Listed Chinese Steel Enterprises (100 million yuan)

Looking ahead, China's steel industry has bid farewell to the era of high growth and high profits. It is expected to operate within a meager profit range in the coming years, with significant fluctuations seen in previous years unlikely to recur, and the amplitude of volatility relatively narrowing. Meanwhile, the product structure disparity characterized by "stronger plate, weaker long products" is expected to persist. Enterprises possessing higher-end products, excellent cost control, advantages in industry chain integration, and green production will hold core competitive advantages in the future.

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