In the current steel industry, this year is still experiencing what many call a "cold winter." While the macroeconomic outlook for 2013 is slightly better than in 2012, the steel sector continues to lag behind broader economic trends. Even with a GDP growth of over 8% in 2013, steel production is expected to rise by only around 3%, and industry profits will remain low.
On March 2nd, Shen Wenrong, President of the All-China Small and Medium Metallurgical Enterprise Chamber of Commerce and Chairman of Jiangsu Shagang Group Co., Ltd., made these remarks at the opening ceremony of the Chamber. He highlighted the unique challenges facing the steel industry, which are reflected in three main areas.
First, the global economy is recovering slowly, and the Eurozone is still in recession, making it difficult for exports to improve. The country is shifting its focus toward consumption-driven growth, which has a lower impact on steel demand compared to previous models.
Second, investment remains weak, real estate continues to face regulatory controls, and urbanization progress is gradual. Infrastructure projects such as railways, subways, and highways are not expanding significantly from the previous year. Meanwhile, shipbuilding and major equipment manufacturing remain in decline, meaning that demand for steel products won't see a major boost.
Third, China is transitioning from high-speed to medium- and low-speed growth. This shift is inevitable, and the economy is moving from quantity-focused development to quality-oriented growth. As a result, the intensity of steel consumption per unit of GDP has been declining. Since 2011, the steel consumption per 100 million yuan of GDP has dropped from 1,657 tons to 1,370 tons. Based on this trend, China's steel output is likely to reach a peak in the coming years, with little room for significant increases in volume.
2012 was a tough year for the steel industry, with total production reaching 718 million tons—an increase of just 3.1%, the smallest growth in recent years.
Looking ahead to 2013, Shen Wenrong noted that steel companies still face high costs, particularly for iron ore. Due to market manipulation by a few large mining companies and some traders, iron ore prices continue to fluctuate sharply. These price swings are now the norm, and any declines are often temporary and controlled, making it hard for steel producers to manage their costs effectively.
At the same time, demand is shrinking, and excess capacity is unlikely to be absorbed quickly. Steel prices are not expected to rise significantly, and the efficiency of steel companies is declining rapidly, approaching a critical point.
Internally, the market mechanism is still not fully functioning. Some steel companies have not adjusted their production schedules according to market demand or profit fluctuations, which negatively affects steel prices. In terms of management, many steel enterprises still operate under outdated models—high-growth, high-cost, high-profit, and high-intensity approaches. Their management systems have not evolved, limiting the potential for improved efficiency and profitability.
To address these challenges, Shen Wenrong suggested that the transformation of the development model should become a conscious effort for steel companies. They should also continue to invest in energy conservation and environmental protection, ensure compliance, obtain necessary permits, and work to reduce costs while improving overall management practices.
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