**Abstract**
Few people realize that steel companies, still struggling under the combined pressures of falling steel prices, declining profits, and rising debt ratios, are facing their most severe winter yet. In this challenging environment, many steel companies have recently announced their interim results. So far, 19 out of 35 listed steel companies in Shanghai and Shenzhen have released their half-year reports. Among them, seven reported losses while twelve showed profits. Although the overall outlook remains uncertain, there is a slight sign of improvement in performance.
However, behind this modest recovery lies more than just improved operations. Many industry insiders believe that government subsidies have played a crucial role in helping these companies turn around their financial results. This reliance on public support has become a common strategy for some steel firms to mitigate losses or even achieve profitability.
On August 26, Wuhan Iron and Steel (WISCO) released its first-half report. While its operating income dropped by 2.01% year-on-year to 44.398 billion yuan, its net profit attributable to shareholders increased significantly to 461 million yuan, up 241.32%. Notably, WISCO’s non-operating income reached 46.397 million yuan, with 42.534 million yuan coming from government subsidies.
This pattern is not unique to WISCO. Other steel companies, such as Lingang and Xiaohang Steel, also received substantial government support during the same period. According to data, in 2012, the total government subsidies for the 35 steel companies in Shanghai and Shenzhen amounted to 6.145 billion yuan, with Chongqing Iron and Steel receiving the largest amount at 2.01 billion yuan.
In 2012, WISCO’s total profit was only 112 million yuan, but it received 345 million yuan in government subsidies. Similarly, Linggang turned from a loss to a profit, reporting a net profit of 36.927 million yuan in the first half of the year, up 115.92% from the previous year. It received 380 million yuan in local government subsidies during the same period.
The trend of increasing government aid has been consistent over the years. Between 2010 and 2012, the total subsidies received by the 35 steel companies rose from 1.143 billion yuan to 6.146 billion yuan. This growing dependence on public funds has raised concerns about the sustainability of the industry's performance.
Analysts like Hu Yanping argue that while government support may temporarily improve financial figures, it does not reflect real progress. “The performance improvement is mainly due to a low base last year,†she said. “The actual operational conditions haven’t improved much.â€
According to the China Iron and Steel Association, the industry still faces significant challenges. Although total profits increased by 30.4%, this was largely due to the weak performance of the previous year. Monthly data shows that profits declined steadily throughout the first half of the year, with June being the worst month.
Zhang Changfu, vice president of the China Iron and Steel Association, noted that economic benefits continued to decline each month. Large and medium-sized enterprises saw profits drop from 1.338 billion yuan in January to just 690 million yuan in June, with the entire industry suffering losses by the end of the period.
In addition, the steel trading sector has deteriorated further. Many traders have reduced their operations, cut costs, and even closed down. In Shanghai, 80% of steel traders have scaled back their activities, with the number of active traders decreasing by about 50% compared to the peak years. Similar trends are observed in Tianjin, where the number of steel traders has fallen by 15-20%.
As the steel industry continues to face mounting pressure, the question remains: how long can government subsidies sustain the sector? Without fundamental improvements in market conditions and operational efficiency, the so-called "warmth" in the numbers may be nothing more than a temporary illusion.
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