Ever since Chinese Premier Li Keqiang delivered this year’s government work report at the 12th National People’s Congress and introduced the ‘Internet+’ strategy, it has become a buzzword in China for many industries.
Industry and enterprises alike have started to put forward their applications of the strategy, including the Excellent Gas Network (EGN) e-commerce platform for the industrial gas industry.
Now, it seems this might be a solution to the difficult situation of the steel industry in China.
On 28th October, the China Iron and Steel Association held its 4th press conference of 2015 to provide an analysis of the situation of the steel business in the third quarter.
Deputy Chairman Mr Zhu Jimin pointed out that, in the third quarter, the national economic growth continued to fall and the pull of economic growth on steel consumption was gradually weakening – and steel consumption intensity had decreased significantly over the period.
In the first three quarters, the apparent national crude steel consumption fell sharply, by 5.8%, although the production of crude steel when compared to the same period last year had already declined 2.1% to 608.94 million tonnes – but this is insufficient to offset the decline in the demand side, and the imbalance between demand and supply is still very prominent.
Steel prices continued to hit record lows, and the main business of iron and steel enterprises were all ‘seriously’ in the red, coupled with a substantial increase in foreign exchange losses and the price increase of iron ore, the entire iron and steel industry is facing losses across the board. Among the 34 steel enterprises that are listed in the stock market, 27 have released their financial results for the third quarter 2015; three-fifths of these are expected to record a loss.
To put it in real terms, from January to September of 2015, according to the statistics from the China Iron and Steel Association, the medium to large-scale steel enterprises have seen total revenue decline 19.6% compared with the same period last year. The top 10 enterprises making a profit had a total profit of RMB 12.3bn, a drop of 18.7%; on the other hand, the worst 10 enterprises recorded a total loss of RMB 32bn, more than 10 times of the total loss of the same period last year.
This demonstrates that the capability to make profit for the profit-making companies has deteriorated whereas the companies losing money are getting even worse.
It is thought that there are only two possible ways to tackle this problem: to stimulate demand, or to cut the supply. However, in view of the current economic situation, there is little hope to increase the demand and it is left to address the problem of over-supply. However, due to various reasons, to resolve the problem of excess production capacity has many difficulties to overcome, thus the slow progress. Even though the nation has put forward many policies to help solve the situation, somehow there is still not much capacity reduced.
Now, there are suggestions that the ‘internet+’ idea should be adopted to facilitate integration of the assets and the restructuring of the industry chain: firstly to promote the coordinated development between the customised needs of the users and the scale of economics of steel production; secondly to evolve steel enterprises from merely producers to production service providers; and thirdly, to base steel enterprises on the research and development of target products for downstream industries to realise coordinated development.
It is thought that making use of the ‘internet+’ concept for the reformation of the steel industry chain can not only achieve a revolution of the marketing model of steel enterprises, but also form a supply chain relationship between the large enterprise groups of the upstream and downstream industries – and ultimately a win-win development.
The struggles in China’s steel industry create a backdrop – and arguably a catalyst – for challenges in the wider steel business, with a number of steel plant closures globally in the last 12 months. The most high-profile of late was the mothballing of the SSI plant in Redcar, UK, one of region’s the largest steel plants.
Prompted to look at the number of plant closures in the last year, gasworld Business Intelligence noted that while various energy subsidies and attempts to curb the effects of ‘cheap’ steel have been instigated by governments the world over, it is clear that global industrial gas industry must find ways of overcoming the decline in demand from one of its most important sources of revenues.
Baosteel reveals Q3 2015 results
The largest steel enterprise in China, Baosteel, has declared its results for the first three quarters of 2015 and revealed a drop of almost 15% in total revenue.
Baosteel’s total revenue for the period dropped 14.9% to RMB 122.1bn from RMB 143.5bn in the same period in 2014. Net profit attributable to shareholders of the listed company dropped substantially (55%), while revenue from iron and steel manufacturing dropped 19.4%.
Even Mr Xu Lejiang, Managing Director of Baogang, commented that the iron and steel industry is entering into a ‘deep winter’ that cannot be avoided.