The steel industry enters surplus adjustment period waiting for the ablation of snow and ice

Yesterday, Premier Wen Jiabao of the State Council presided over the State Council Executive Meeting to review and in principle pass the adjustment and revitalization plan for the steel industry. After five years of high growth and a booming cycle, the Chinese steel industry once again entered the adjustment cycle. Looking ahead to 2009, under the fundamentals of reduced domestic and foreign demand and overcapacity, the revitalization plan will allow the steel industry to recover from the current extreme cold. However, the industry cannot escape the trend of weak balance between supply and demand and the bottom of the economy.
The plan involves five major aspects: Premier Wen Jiabao of the State Council presided over the executive meeting of the State Council yesterday, and reviewed and in principle passed the adjustment and rejuvenation plan for the steel industry.
The meeting pointed out that to speed up the adjustment and revitalization of the steel industry, we must focus on controlling the total amount, eliminating backwardness, joint reorganization, technological transformation, and optimizing the layout, and push the iron and steel industry to become stronger and stronger. First, we must coordinate the two markets at home and abroad. Implement measures to expand domestic demand and stimulate domestic steel consumption. Implement a moderately flexible export tax policy to stabilize international market share. Second, we must strictly control the total amount of steel, eliminate the implementation of production capacity, and no longer be able to simply increase the capacity of steel projects. Third, we must give play to the leading role of large groups, promote joint reorganization of enterprises, cultivate large-scale and extra-large steel groups with international competitiveness, optimize industrial layout, and increase concentration. Fourth, we must increase technological innovation, research and development and the introduction of strength, in the central budget of infrastructure investment in the special funds, promote the technological progress of the iron and steel industry, adjust the variety structure, enhance the quality of steel. Fifth, it is necessary to rectify the iron ore import market order, regulate the steel sales system, and establish a mechanism for sharing production and sales risks.
The plan calls for the co-ordination of two domestic and foreign markets, the implementation of measures to expand domestic demand, and stimulating domestic steel consumption; implementing a moderately flexible export tax policy and stabilizing international market share.
The relevant steel experts believe that since the second half of last year, the domestic steel market price has dropped significantly, with a drop of about 40%. In the context of the surviving crisis in the steel industry, the country introduced the revitalization plan for the steel industry. An important purpose is to save the steel market and prevent steel companies from suffering more losses.
The sign of the steel sector's cyclical downturn during the oversupply phase of adjustment of the steel industry began at the end of 2007. However, the global commodity bubble led to the expansion of intermediate demand and caused the false prosperity of steel to continue into the first half of 2008, only to undergo a depth adjustment in the second half of the year.
In 2009, China's domestic iron and steel demand was mainly attributable to the decline in investment in the market-oriented sectors such as real estate and manufacturing, and the sluggish consumption of automotive appliances. We expect China's actual fixed investment growth rate to fall to 12% in 2009.
Foreign demand was the main factor driving China's steel business cycle after 2006, but after 2009, with the extension of the financial crisis to the real economy, this power failure has become an inevitable trend. According to OECD's global leading indicators, the trend is optimistic. It is estimated that the recovery of international steel prices and demand after the second half of 2009 is possible.
Although domestic new crude steel production capacity has slowed down significantly after 2007, in the face of the pressure of declining internal and external demand, the domestic domestic production capacity and new production capacity are still facing pressure from surplus in 2009.
Based on the above analysis, China's steel industry may enter a round of 2 to 3 years of adjustment cycle after 2009. Its industry characteristics are: low demand, relative production capacity surplus, steel prices and raw material prices in a relatively low cycle, steel companies realize profitability has become More difficult, mergers and acquisitions in the industry are more likely.
The year-on-year rate of return on earnings in 2009 decreased year-on-year due to a decline in global demand. We expect that the 2009 international iron ore agreement ore price will decline by a significant 30% to 35% year-on-year. As a whole, domestic steel prices will operate on weaker trends in 2009.
In the fourth quarter of 2008, it was the quarterly trough of historical earnings for the industry; considering the lag in the cost reduction of large steel mills, it is expected that the industry's earnings in the second quarter of 2009 will rebound relative to the first quarter.
From the quarterly year-on-year, due to the high profitability of the steel industry in the same period of 2008, the industry earnings in the first half of 2009 will show a substantial year-on-year decline.
The steel industry waits for the melting of ice and snow The fourth quarter of 2008 was also the consensus reached by the market at the bottom of the profitability of the industry. However, at the end of the year, the accrual of listed company's inventory depreciation losses caused considerable uncertainties, which also became the last snow and ice in the steel industry in winter. . For some steel companies, losses in the fourth quarter (including the provision for inventory losses) may erode their major profits in the first three quarters of 2008.

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