China's steel industry has reached a crossroads
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Recently, China Iron and Steel Industry Association launched the iron ore price index of Sinosteel, which has caused quite a lot of repercussions at home and abroad. This move is generally interpreted as the re-seeking of the right to speak in the era of iron ore financialization. What impact will the China Steel Association's price index have on the price trend of China's steel industry? Can we fundamentally change the situation in which China's iron ore market is controlled by the three giants of BHP Billiton, Rio Tinto and Vale? What kind of bottleneck is the Chinese steel industry currently facing? In response to these questions, the reporter interviewed Liu Weimin, a researcher at the Market Research Institute of the State Council. China's steel demand growth rate was suppressed. On September 20, China Steel Association launched China's iron ore price index. In this regard, Zhou Wangjun, deputy director of the price department of the National Development and Reform Commission, said that the China Steel Association's price index is conducive to breaking the monopoly of the Big Three. The pattern is strategic and iconic for the Chinese steel industry. However, some analysts pointed out that many domestic institutions have already issued iron ore price indices, but they have not had a big impact. How do you think about this problem? Liu Weimin: I think that the price index of China Steel Association can be seen from three aspects. First, this price index has a strong practical significance and can reflect iron ore, especially the supply and demand of iron ore in China. Because China is currently the largest steel producer and consumer, crude steel production reached 620 million tons in 2010, accounting for 44.3% of the world's crude steel output. Last year, China's steel output has reached 796 million tons. In 2010, the export of steel was 42.56 million tons. It can be said that most of the steel is consumed in the domestic market. At the same time, China's iron ore dependence on foreign trade is about 63%, and China is also the largest importer of iron ore. Therefore, the Chinese iron ore market has an industrial base and market base reflecting real prices. The second is to get rid of a misunderstanding of the price index, that is, the real significance of establishing an iron ore price index is not to affect the price, but to better reflect the real situation and trend of the market. For the external market, avoid some international speculators on price manipulation and control. For domestic enterprises, avoiding price fluctuations leads to staged panic in enterprises. For example, there have been many times before companies have concentrated on importing a large amount of iron ore, which not only causes iron ore. Stone prices rise irrationally, and they also increase the logistics costs of iron ore, such as the emergence of a large number of ore pressure. Third, it is conducive to the production enterprises to better organize production. Because the average profit rate of the steel industry is relatively low now, the current profit margin of the steel industry is about 3%, and even some enterprises still can't reach this level. This raises the higher management level and optimal control of production. Claim. Iron ore is one of the main cost components of steel, and iron ore price fluctuations have a greater impact on steel production. Therefore, the true reflection of supply and demand through the price index is conducive to improving the production efficiency of enterprises. Reporter: At present, the domestic monetary tightening policy is implemented, while the international debt crisis exists in the United States and Europe. What impact do you think this will have on steel prices? Liu Weimin: This is actually two problems. One is the impact of domestic monetary policy on the steel market, and the other is the impact of the international debt crisis on the steel market. Of course, in general, these two aspects will actually inhibit the growth rate of China's steel demand to a certain extent. From the perspective of domestic monetary policy, with the gradual emergence of the effects of regulatory policies, aggregate demand has been somewhat suppressed. Since the beginning of this year, the central bank has continued to adopt a relatively tight monetary policy. It has raised the deposit reserve ratio six times and raised interest rates three times. It has implemented differential deposit reserves for some banks, and recently expanded the deposit base for deposit reserves. A series of currency control effects are emerging. As of the end of August, the year-on-year growth rates of the narrow money (M1) and broad money (M2) balances both fell. This will further tighten the capital chain of iron and steel enterprises, especially for some small and medium-sized steel production and trading enterprises, because the downstream enterprises often adopt the mode of selling sales, and with the tight funds of downstream enterprises, the accounts receivable The rate of return will decline. In the event of a default by a downstream company, the cash flow of these small and medium-sized steel companies will be more tense, which will put downward pressure on the steel market price. From the perspective of the US and European debt crisis, in order to solve the sovereign debt crisis, the fiscal policies of European and American countries will be tightened, which will weaken the stimulus to the domestic economy. According to the latest forecast of the International Monetary Fund, the global economy will be this year and next. The growth rate is 4.0%, which is 0.3 and 0.5 percentage points lower than the forecast in June. This means that demand growth in the external market will slow down, while Europe and the United States are also one of the major export regions of China's steel. The debt crisis will indirectly affect steel exports, but there will be no significant correction in steel exports. Therefore, there is little room for steel supply to ease the pressure on domestic market supply. Capacity should be mainly absorbed through the domestic market. China's steel market will show a continuous shock, a small upward trend Reporter: We know that the price of iron ore directly determines the price of steel. The price of steel is predicted to be inseparable from iron ore. Some people think that the current global demand for iron ore is much lower than the rate of mine expansion. In the future, steel prices will plummet. Some people think that most of the world's iron ore is controlled by the three giants of BHP Billiton, Rio Tinto and Vale. The degree is extremely high, so the future steel prices will not plummet. How do you view the future trend of domestic steel prices? Liu Weimin: From the perspective of iron ore prices, with the decline in global iron ore demand growth, iron ore prices do have some room for downward adjustment, but it must be noted that current iron ore prices are still at historically high levels, in August. The average import price of iron ore was US$173.37/ton, which was 24.1% higher than the same period last year. Other raw materials are also basically in a high-level operation. Therefore, as the domestic and international economic growth rate slows down, the cost price of iron ore does need to be adjusted, but it is still a high-level adjustment. In addition, the growth rate of fixed asset investment showed a slow decline, and social inventories are rising, which has led to an increase in downward pressure on steel prices in the near future. However, from the perspective of the overall market situation, the basic economic situation of China's sustained and steady growth will not undergo fundamental changes, and this is the most important factor supporting steel prices, coupled with the construction of affordable housing into the peak period of construction, the price of construction steel The pulling effect will gradually appear, the manufacturing activity has increased, the purchasing managers' index has been adjusted for two consecutive months, and the PMI (Purchasing Managers Index) has been adjusted back to 51.2% in September. Therefore, on the whole, the situation of China's steel market will continue to fluctuate and rise slightly. Reporter: According to your research on steel prices for many years, do you think there is a certain periodicity in the trend of steel prices? Liu Weimin: There is a strong correlation between steel prices and the macroeconomic cycle. Take the hot rolled coil price index of China Steel Association as an example. With the gradual spread of the financial crisis, the price index was once 160.34 at the end of July 2008. The point fell to 89.81 points, a drop of 44%. Then, with the introduction of a series of macro-stimulus policies, it gradually stabilized and rebounded. As of the end of September 2011, the hot rolled coil price index was 128.09 points. At the same time, the price of steel also has its own seasonal law. In the peak season of production in the downstream steel industry, prices tend to rise by a large margin. Reporter: In recent years, domestic steel prices have continued to rise and remain high, but the profitability of steel companies is very low. Apart from the factors that increase the price of iron ore year by year, what factors do you think lead to the profitability of domestic steel companies? low level? Liu Weimin: I think that the first is the contradiction between supply and demand. The basic contradiction in China's steel market is still a problem of oversupply. Especially after the financial crisis, the global economic situation is still adjusting and recovering, and steel demand is still in a stage of restorative growth. Second, in the context of oversupply, the phenomenon of homogenization competition among steel producers is relatively common. There are still no breakthroughs in some high-end steel products, and there is still much room for improvement in management innovation. In contrast, steel companies in Japan and South Korea attach great importance to the industrial chain management model, and the steel shear processing center is a good example. Third, some macro-control policies have also led to an increase in the cost of enterprises. For example, with the advancement of scientific development work, energy-saving and environmental protection investment in the steel industry as “two highs and one capital†is gradually increasing, and interest rate hikes have also led to the financial costs of steel enterprises. rise. Therefore, on the one hand, steel companies are facing pressure from rising costs, and on the other hand, profit margins are indeed limited. The combination of the two causes the overall profitability of China's steel industry to be low. Solve the bottleneck faced by China's steel industry as soon as possible. Reporter: If China's steel industry wants to maintain healthy development, what do you think is the problem that it urgently needs to solve? Liu Weimin: I think that the urgent problem that needs to be solved at present is to control the expansion of steel production capacity, scientifically plan production capacity targets, and fundamentally solve the contradiction of overall steel supply. Second, we must continue to vigorously promote energy conservation and emission reduction work. The combination of incentive mechanism and punishment mechanism should not only strengthen administrative supervision, but also guide enterprises to increase energy conservation and emission reduction through fiscal, financial, and taxation tools. More transfer payments should also be given to less developed regions. Third, we must rationally allocate iron ore resources at home and abroad. We must develop the domestic iron ore resources in an orderly manner, gradually improve the efficiency of domestic iron ore resources, and encourage large steel companies to go global, gradually increase the proportion of equity mines, and actively respond. The new situation of the iron ore pricing mechanism will give play to the price discovery function of the Chinese iron ore market. Fourth, it is necessary to improve the production management level of enterprises, increase the research and development of high-end steel, and gradually fill the gaps in key domestic technologies.