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Securities Times reporter Zhao Liyun

The decline in steel prices this year, coupled with the relatively high iron ore prices, has put pressure on steel companies' profitability. In the first five months of this year, the profitability of the steel industry hit the worst level in the past decade, and the prices of different types of steel also fell. Looking ahead to the future market, steel industry insiders believe that my country's steel supply pressure is still relatively large, but the prosperity of downstream industries such as manufacturing is expected to stabilize, driving the growth of steel demand.

Recently, 24 listed steel companies disclosed their first-half performance forecasts, and 15 of them expected to incur losses.

Regarding the main reason for the loss, Shandong Steel (600022) stated that in the first half of 2024, the steel industry was clearly experiencing a situation of strong supply, weak demand, low prices and high costs, which continued to squeeze corporate profit margins and the purchase and sales price difference was significantly reduced compared with the same period last year.

Angang Steel Co., Ltd. (000898) also stated that in the first half of 2024, downstream demand in the steel industry continued to be sluggish, and steel prices showed a low-level fluctuation trend. Although the raw material end also declined in tandem, the decline was lower than that on the sales end. The "scissors gap" on both the buying and selling ends further narrowed, and the profit margin was further compressed.

At the just-concluded 2024 My Steel Mid-Year Conference and the Sixth Bohai Rim Steel Industry Chain High-Quality Development Forum, Wang Haitao, Vice President and Secretary-General of the China Price Association, said that steel prices have fallen this year, while iron ore prices are still at a relatively high level. Due to insufficient effective demand, companies are facing great pressure.

Wang Yingsheng, chief economist of the China Iron and Steel Association, also said that my country's steel production in the first half of the year was 530 million tons, down 5 million tons year-on-year, a decrease of 0.94%. From the perspective of domestic consumption in the first half of the year, which was 478 million tons, it fell by 3.3%, which was a larger decline than the decline in production. Domestic consumption showed the characteristics of weak demand. However, China's future steel demand is still huge, including urban village reconstruction, steel structure replacement, infrastructure construction, etc. will still provide support.

"The prosperity of the downstream steel industry is expected to stabilize in the second half of the year, driving the growth of steel demand. It is expected that the blast furnace operating rate will increase, more steel mills will resume work and production, and the profits of steel companies will be restored." Zhao Liangbi, chief analyst of China Galaxy Securities, pointed out that if the real estate market stabilizes, infrastructure demand is released in a concentrated manner, and manufacturing and export demand are resilient, the total demand for steel throughout the year is expected to maintain growth.

Zhao Liangbi said that the consumption structure of China's downstream steel industry will change significantly in 2024. Against the background of industrial transformation and upgrading and the promotion of large-scale equipment renewal and consumer goods trade-in action plans, real estate policies in many places have been optimized, and the real estate market in some cities has shown signs of recovery. The stock of houses has been gradually digested, and the demand for construction steel has improved marginally; the overall demand in the automobile industry is good, and the rapid growth of new energy vehicles has promoted the growth of demand for high-end special steels such as non-oriented silicon steel, driving the marginal improvement of demand for high-end special steel materials; shipbuilding orders have grown rapidly, and the demand for medium and thick plates has continued to grow; the steel consumption in the machinery industry is expected to stabilize and rebound, and the growth rate of steel used in emerging machinery and equipment is relatively fast; the home appliance industry has shown a positive development trend, with policies supporting domestic demand, overseas inventory reduction, and continuous improvement in exports.

Wang Jianhua, chief steel analyst at Shanghai Steel Union, said that the demand in the steel market may improve in the second half of the year, and in the short term, in late July or August, we will see signs of a turnaround in demand. In terms of supply, it mainly depends on the implementation of production control, energy conservation, and carbon reduction policies. Overall, it is expected that the fundamentals of steel supply and demand will likely improve in the second half of the year.

Looking ahead to the steel market in the second half of the year, Wang Jianhua believes that the biggest driving factor is policy factors such as carbon reduction. In terms of raw materials, it is expected that the average price of iron ore this year will not be higher than US$110/ton, the average price of coking coal will not be lower than RMB 2,050/ton, and the average price of coke will be difficult to be higher than RMB 2,200/ton. Demand may improve in the second half of the year. First, this year's "three major projects" may bring an increase of 10 million tons of steel use, most of which will be released in the second half of the year; second, equipment updates and large-scale replacement policies will also be mainly implemented in the second half of the year, which may bring an increase of 5 million tons of steel use; third, this year's rainfall exceeded expectations, delaying steel consumption and also bringing an increase in steel demand in the second half of the year. It is expected that the export demand for steel will fall from a high level in the second half of the year, but it will still maintain a certain degree of resilience. In the short term, in late July or August, we will see signs of a turnaround in demand.

Regarding the future development direction of the industry, Wang Yingsheng said that the steel industry itself is undergoing structural changes. On the consumer side, the proportion of steel used in the construction industry and the manufacturing industry has been adjusted to a certain extent, and the proportion of steel used in the manufacturing industry has increased; on the supply side, it is manifested as long products turning into plates, and general materials turning into special materials. Hot-rolled and medium and thick plates have become hot varieties, and high-end product production lines have increased rapidly. The high-quality development of the steel industry will bring new demand growth points. The core issue is to meet user needs. Demand determines production, and the product structure has changed significantly. It is necessary to produce marketable varieties and transform around the market and around users.