In the current year, the steel industry is still enduring what can be described as a "cold winter." While the macroeconomic environment in 2013 is expected to be slightly better than 2012, the steel sector has struggled to keep pace with broader economic trends. Even if GDP growth reaches above 8% in 2013, steel production growth is likely to remain modest, around 3%, and industry profits will continue to stay at low levels.
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 during the opening ceremony of the Chamber. He emphasized that the steel industry faces unique challenges that are not easily resolved by macroeconomic improvements alone.
According to Shen, there are three key factors contributing to the industry's difficulties. First, global economic recovery remains slow, and the Eurozone continues to face recession, making it hard for steel exports to improve. China’s future growth will rely more on consumption, which has a lower impact on steel demand intensity.
Second, investment growth shows no clear signs of improvement. Real estate regulation persists, urbanization progresses steadily, and infrastructure projects like railways, subways, and highways are unlikely to see significant increases. Shipbuilding and major equipment manufacturing are still in decline, meaning demand for steel products won’t experience a major boost anytime soon.
Third, China has transitioned from high-speed growth to medium- to low-speed growth. This shift is an unavoidable trend, and the economy is moving toward quality over quantity. As development quality improves, steel consumption per unit of GDP is gradually decreasing. Since 2011, steel consumption per 100 million yuan of GDP has dropped from 1,657 tons to 1,370 tons. Given this trend, China’s steel output is expected to reach its peak in the coming years, with little room for substantial growth.
2012 was a particularly tough year for the steel industry, with total production reaching 718 million tons—a 3.1% increase, the smallest growth in recent years.
Looking ahead to 2013, Shen pointed out that steel companies still face high costs, especially regarding iron ore. Due to market monopolies and manipulation by some traders and foreign mining giants, iron ore prices are volatile and unlikely to drop significantly. Any price declines would be short-term fluctuations, further complicating cost management for steel producers.
At the same time, shrinking demand means excess capacity will not be absorbed quickly, and steel prices are unlikely to rise substantially. The efficiency of steel companies is diminishing, approaching a critical point.
Internally, the market mechanism has not fully taken effect. Some steel companies have not adjusted their production schedules according to market conditions or profit and loss changes, negatively affecting steel prices. In terms of management, many companies still operate under outdated models—high-growth, high-cost, high-profit, and high-intensity—which limit efficiency and prevent optimal performance.
To address these challenges, Shen suggested that the transformation of development models must become a conscious effort for steel enterprises. Companies should focus on energy conservation, environmental protection, and increasing investments in sustainable practices. They should also work to reduce costs, enhance efficiency, and continuously improve management systems to remain competitive in the long term.
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