In 2012, restricted bank lending led to the closure of numerous steel trading companies. Looking ahead, low-profit operations in the steel industry are expected to become the norm, with some firms facing cash flow shortages and even potential breakdowns in their capital Chains. By 2014, the steel market is likely to remain one where overcapacity persists, and the balance between supply and demand will continue to be a key challenge.
If China can keep its crude steel production at around 800 million tons in 2014, it could achieve a basic balance between supply and demand. In 2013, the domestic crude steel output was approximately 780 million tons, with about 50 million tons exported. The apparent consumption reached around 730 million tons, an increase of 25 million tons from 2012, which aligns with the projected GDP growth of 7.7% for that year. The steel consumption per 10,000 yuan of GDP decreased to 129 kg in 2013 and is expected to drop further to 121 kg in 2014. Similarly, steel consumption per 10,000 yuan of fixed asset investment fell to 162 kg in 2013 and is projected to reach 142 kg in 2014. With a GDP growth forecast of 7.8% in 2014, steel consumption is expected to be around 750 million tons, leaving limited room for export growth.
China’s steel production capacity has continued to grow, reaching about 1 billion tons by the end of 2012. New capacities added in 2013 and 2014, including blast furnaces, have pushed total capacity to over 1.1 billion tons by the end of 2014. Despite efforts to phase out outdated production, overcapacity remains a significant issue, leading to low efficiency across the industry.
Controlling steel output to 800 million tons is challenging without market-driven adjustments. It is estimated that 2014 crude steel production may reach 820 million tons. Without a significant increase in domestic inventories, the market will not see fundamental changes, and steel companies will continue operating at low efficiency.
The domestic steel market currently faces low inventory levels, and future steel circulation is expected to become more efficient, accurate, and streamlined. However, risks from restricted bank lending persist, and the number and scale of steel circulation companies are still shrinking. Market liquidity remains weak, and transaction volumes are low.
With the advancement of logistics and e-commerce, bulk commodity trading is gaining momentum. Processing centers combined with digital platforms will shorten the steel distribution chain and enable more precise, direct delivery to end users.
In 2014, the gradual release of new iron ore capacity from major suppliers like the Big Four is expected to ease global supply-demand imbalances. Global iron ore demand is projected to rise to 2.105 billion tons in 2014, up from 1.97 billion tons in 2013. Iron ore imports into China remain low, with port stock levels below the ideal range. To avoid price volatility, steel mills should manage purchases carefully.
Iron ore prices are unlikely to fall below $120/ton in the fourth quarter of 2014 or the first half of 2015, with prices expected to stay within the $130–$140/ton range.
Coke exports from China are expected to rise in 2014, influenced by coking coal demand. Domestic and international coke prices are projected to be slightly higher than in 2013. Steel product prices in China saw an upward trend during the latter part of 2013 and into early 2014, driven by environmental policies, seasonal demand, and low iron ore stock levels.
Despite current low inventory levels and cautious market sentiment, steel prices are expected to rebound as winter storage demand supports costs and financial conditions improve. Overall, the average steel price in 2014 is expected to remain close to that of 2013.
The listing of various coal-based products has changed the way steel companies operate. Previously, raw material pricing was stable, but now, with increased marketization, steel companies must navigate fluctuating fuel prices. This shift has impacted profitability, especially when steel and iron ore prices move in tandem.
As spot and futures markets interact more closely, price movements in both steel and raw materials have become more unpredictable. Effective risk management and inventory control are now critical for steel companies.
Additionally, factors such as global economic conditions, monetary policies, China’s macro-control measures, environmental regulations, and exchange rate fluctuations will continue to influence the steel market. These external forces will shape the future trajectory of the industry.
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