In the first quarter of 2014, the Chinese steel industry faced its worst performance in over a decade, marking the beginning of what many now call the "winter" for the sector. Liu Zhenjiang, vice chairman of the China Iron and Steel Association, warned that this quarter could be the most challenging since the new century, signaling a deepening crisis.
According to Liu, January and February 2014 saw the worst operating conditions in recent years. Key steel enterprises suffered losses, with one month alone reporting a loss of 1 billion yuan, affecting nearly 43% of companies—a record high. The situation in February remained grim, as demand continued to fall while production levels stayed stubbornly high.
Data from the National Bureau of Statistics showed that crude steel output in the first two months of 2014 reached 130.8 million tons, up 1.7% year-on-year. Daily output hit 2.217 million tons, a 10.2% increase compared to the previous year—another record. This surge in supply, combined with weak demand, has led to growing concerns about oversupply in the market.
Meanwhile, the profitability of 163 steel mills dropped to 28.22%, down 4.91% from the previous period. Although steel inventories have decreased slightly for two consecutive weeks, the inventory at major steel companies still rose by 28% year-on-year to 16.25 million tons. This suggests that the burden of excess stock remains heavy, particularly for producers rather than traders or end-users.
Liu pointed out two key factors contributing to the current downturn: declining market demand and tightening policy constraints. Demand fell by 8.6% in January, while steel production dropped only 3.2%. This mismatch between supply and demand has put immense pressure on the industry. Additionally, environmental regulations, differential electricity pricing, credit restrictions, and tax burdens have further constrained operations.
Steel prices continued to decline, hitting a five-year low last week with the domestic steel price index closing at 122.33 points, down 0.75% from the previous week. In the construction steel market, prices dropped across most regions, with Shanghai, Beijing, and Changsha seeing declines of $10 to $110 per ton. The falling iron ore prices have triggered panic among traders, who are increasingly pessimistic about the future outlook.
In the plate and hot-rolled coil markets, prices also fell, with weekly drops ranging from 20 to 70 yuan in major cities like Shanghai and Guangzhou. Leading steelmakers such as Baosteel and Wuhan Iron and Steel maintained a "flat" pricing policy for April, reflecting cautious market sentiment. Hot-rolled coil prices have fallen to their lowest level in 18 months, approaching the marginal cost of production.
Analysts believe that while environmental regulations and the elimination of outdated capacity have had limited impact so far, the mismatch between supply and demand remains a critical issue. With steel production rising again and downstream demand recovering slowly, the market is still facing significant oversupply. However, the downward trend in prices may soon reach a limit, and a short-term rebound is possible.
The China Steel Association expects that as temperatures rise, domestic steel demand will gradually pick up. However, economic growth continues to face downward pressures, and steel demand growth is likely to slow. While prices may stabilize later due to cost support, a sharp rebound is unlikely in the near term.
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