In the current year, the Chinese domestic steel sector has continued to struggle against a background of increasing steel outputs of mills, high finished inventory levels at mills and traders, low steel prices, the imbalance between supply and demand, reduced profits of steel enterprises and the weak macroeconomic environment, according to a report issued by China's Ministry of Industry and Information Technology (MIIT).
As of July 26, the composite steel price index (CSPI) for the Chinese domestic market issued by the China Iron and Steel Association (CISA) was at 100.48 points, down 6.6 points compared to the beginning of this year. As of July 26, the average decrease in prices of the main steel products in the Chinese domestic market was 5.7 percent compared to the beginning of this year. In particular, as of July 26 compared to the beginning of this year, the prices of wire rod, rebar, steel plate and hot rolled coil in China were down 4.9 percent, 6.7 percent, 5.7 percent and 9.7 percent respectively.
According to China's National Bureau of Statistics (NBS), in the first half of the current year the aggregate gross profit of the ferrous metal smelting and processing industry in China was RMB 45.44 billion ($7.4 billion), increasing by 22.7 percent year on year. In each of the first five months of this year, the gross profits of large and medium-sized steel enterprises in China declined on month-on-month basis. In the January-May period, although the overall gross profit of the companies in question indicated a 34 percent year-on-year increase, the aggregate increase amounted to only RMB 2.8 billion ($4.5 billion). The gross profit to sales ratio of the companies in the given period was just 0.19 percent. In May alone, the overall gross profit of 86 large and medium-sized steel enterprises in China amounted to RMB 150 million ($24 million). 34 of the 86 companies in question posted net losses in May.The MIIT predicts that the Chinese domestic steel sector is unlikely to see an improvement in the short term due to the seasonal lull in July and August, the slowdown of the Chinese economy, decreases in demand and in exports, fluctuations in financial markets, and tighter liquidity for investments in real estate and infrastructure. Overcapacity is still a big problem due to the failure to cut outputs. In the second half of the current year, steel prices in the Chinese domestic market are expected to remain at low levels due to higher production and low demand, the MIIT said.