In 2012, the restriction on bank loans 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 issues and even potential breakdowns in their capital Chains. By 2014, the steel market will still be characterized by overcapacity, with production exceeding demand for much of the year.
If China can limit its crude steel output to 800 million tons in 2014, a basic balance between supply and demand is likely. In 2013, domestic crude steel output was around 780 million tons, with net exports reaching 50 million tons. The apparent consumption was approximately 730 million tons, up by 25 million tons from 2012, aligning with the projected GDP growth of 7.7%.
From 2001 to 2012, the steel consumption per unit of GDP and per unit of fixed asset investment declined steadily. In 2013, the steel consumption per 10,000 yuan of GDP was 129 kg, and it is expected to drop to 121 kg in 2014. Similarly, the steel consumption per 10,000 yuan of fixed asset investment decreased from 162 kg in 2013 to an estimated 142 kg in 2014. With a projected GDP growth of 7.8% in 2014, steel consumption is expected to reach about 750 million tons, with limited room for further export growth.
China’s steel production capacity has continued to expand. As of the end of 2012, total capacity stood at around 1 billion tons. By the end of 2013, it reached 1.07 billion tons, with a utilization rate of 75.2%. By 2014, the capacity is expected to rise to 1.12 billion tons, even after accounting for phased-out production. The overcapacity issue remains a major challenge for the sector.
Controlling steel output to 800 million tons is difficult through internal coordination alone. Market forces will play a key role. It is estimated that 2014 output may reach 820 million tons. If inventory levels remain stable, the market situation is unlikely to change significantly, and steel companies will continue operating at low efficiency.
The domestic steel market currently has low inventory levels, which is pushing for more efficient and accurate circulation. However, risks from tight credit conditions persist, and the number and scale of steel trading companies are still shrinking. This has led to a lack of liquidity and weakened market functions.
With the development of e-commerce and logistics, the steel distribution process is becoming more streamlined. Processing centers combined with digital platforms are helping to improve efficiency and direct distribution to end users.
The gradual increase in iron ore supply from the Big Four producers in 2014 is expected to ease global imbalances. Global iron ore demand is projected to rise to 2.105 billion tons in 2014. Imports remain a cost-effective option, but current inventory levels in major ports are below the ideal range. Steel mills should manage purchases carefully to avoid price spikes.
Iron ore prices are expected to stay within the $130–$140/t range in the fourth quarter of this year and the first half of next year.
Coke exports from China are expected to rise in 2014, influenced by coking coal demand. Domestic and international coking coal and coke prices are anticipated to remain slightly higher than in 2013.
From late 2013 to mid-2014, steel product prices generally rose. Environmental policies and the elimination of outdated capacity are important factors. Demand typically increases in the fourth quarter due to new projects. Low iron ore inventory and winter storage needs support prices.
Currently, the steel market is in a destocking phase, with prices remaining low. As inventory decreases, prices often fall. However, with cost support and improved funding conditions, steel prices are expected to rebound slightly. Overall, the average 2014 price level is likely to be similar to 2013.
Before the listing of coal-based coke steel products, the operating model of steel companies changed. Previously, raw material costs were fixed, and profitability depended on sales and management. The shift in pricing mechanisms has increased cost volatility, reducing profit margins.
With the listing of various coal-based products, the interaction between spot and futures markets has made price movements harder to predict. Effective risk management and inventory control have become critical for steel companies.
Additionally, macroeconomic conditions, monetary policies, environmental regulations, and financial market fluctuations all influence the steel market. These factors will continue to shape the industry's future.
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