Finance Association, October 31 (Reporter Zhang Liangde) The steel industry appears to be in a “prisoner's predicament”. With demand for steel terminals declining, the balance between supply and demand in the original market was broken, while industry output continued to run at a high level, making it difficult for steel companies to actively cut production. The market supply and demand structure continued to not be optimized. Industry losses intensified in the third quarter, and the total quarterly losses of listed steel companies were close to the total losses of last year.

Xu Xiangchun, information director of the Shanghai Steel Federation, told the Financial Federation reporter: “The main reason for the industry's sharp losses in the third quarter was overcapacity in the steel industry itself, the industry's poor sense of self-discipline, and they wanted to liberalize production. As soon as production was liberalized, it exceeded market demand. This led to an oversupply of products and a drop in steel prices.”

Profit situation of listed companies in the steel smelting industry in the third quarter (data source: three-quarter reports of listed companies)

At present, all listed companies in the steel industry have disclosed financial reports for the third quarter. In the third quarter, all listed companies in the steel smelting industry declined year-on-year, and 21 of the 27 listed steel smelting companies lost net profit, with a total loss of more than 14.5 billion yuan; in the third quarter, 18 of the 27 listed steel smelting companies experienced net profit losses to mother, with a total loss exceeding 14 billion yuan.

Specifically, Angang Steel Co., Ltd. (000898.SZ) lost 2.414 billion yuan in non-net profit in the third quarter, Bengang Steel (000761.SZ) deducted non-net profit loss of 1.707 billion yuan in the third quarter, and Ma Steel (600808.SH) deducted a loss of 1.386 billion yuan in non-net profit in the third quarter. The main profit was only 6 steel companies, with a total profit of about 3.3 billion yuan.

Losses in the steel industry continued to deepen in the third quarter. According to data from the National Bureau of Statistics, from January to September 2024, the ferrous metal smelting and rolling processing industry lost 34.1 billion yuan, a year-on-year decrease of 256%.

Baosteel Co., Ltd. (600019.SH) said that the main reason for the decline in profits in the third quarter was that during the reporting period, the decline in steel prices was higher than that of raw materials, and profit margins continued to shrink.

According to data from the Bureau of Statistics, from January to September 2024, the ferrous metal smelting and rolling processing industry achieved operating income of 5842.6 billion yuan, a year-on-year decrease of 6.0%; operating costs were 5,655.55 billion yuan, a year-on-year decrease of 5.1%. In addition, according to Steel Union data, the Tangshan steel billet composite absolute price index fell all the way from 3,343 yuan/ton at the beginning of the third quarter to a minimum of 2,781 yuan/ton on September 6, with a maximum drop of 16.81%; the coking coal price index fell from 1,681 yuan/ton at the beginning of the quarter to 1,407 yuan/ton on August 26, the biggest drop of 16.30%, which is slightly less than the steel price drop, and the price rebounded earlier than steel prices; the 58% Fe spot price index in Caofeidian fell from 750 yuan/ton wet ton at the beginning of the quarter to September 23 32 yuan/wet ton, a decrease of 15.73%.

Judging from changes in the prices of finished materials and raw fuels, there is indeed a situation in the market where the decline in steel prices is higher than that of raw materials. Xu Xiangchun believes that the main reason for this situation is: “Although steel prices have fallen, steel mill production has not decreased significantly, which means that demand for raw materials has not decreased much, and raw material price support is strong. As a result, the decline in steel prices exceeds the drop in raw material prices, and conflicts continue to accumulate. This has led to a continuous narrowing of the profit margin of steel mills.”

The industry believes that the steel industry is in a so-called prisoner's predicament. Xu Xiangchun said that although crude steel production data for the third quarter was reduced, this was passive. When products continue to lose money, the company's operating cash flow problems begin to occur, and the market is forced to cut production. What the industry needs is to take the initiative to cut production, so that steel prices can be relatively stable.

Xu Xiangchun said, “There are various reasons why it is difficult to implement active production cuts. There are reasons for enterprises themselves, as well as pressure on local economic growth, and they are unwilling to let steel mills cut production even more.”

Although the losses of listed companies in the steel industry hit a new high in the third quarter, steel prices rose sharply in late September under the influence of China's favorable economic policies, and the profit situation of steel companies has improved somewhat. Many in the industry believe that with the release of favorable policies, it will have a great effect on changing market expectations and restoring market confidence. Real estate showed signs of stopping falling and stabilizing, while capital market activity increased. However, after real estate stopped falling and stabilized, it will take some time to actually boost steel demand.