Rising Raw Material Costs Lead to Declining Profits in the Steel Industry

China’s crude steel output fell 5.78 percent in July to 2.7491 million tons a day, the China iron and steel association said on Wednesday.The growth rate of steel production slowed down significantly, and the steel price was relatively stable. However, due to the high cost of raw materials, the benefits of steel enterprises declined.

From January to July, China steel association member enterprises achieved sales revenue of 2.43 trillion yuan, a year-on-year growth of 9.75%, but the sales cost increased 14.4%, the final profit of 123.582 billion yuan, a year-on-year decline of 23.93%.Recently released semi-annual report of listed companies also shows that most of the steel enterprises have declined performance.

According to the iron and steel association responsible person, the profit decline is mainly due to the rise in raw material prices.In the first seven months of this year, the purchasing cost of domestic iron ore rose 19.88 percent year on year, imported ore rose 29.13 percent, and scrap steel increased 10.03 percent. 

It is worth noting that although the price of imported iron ore continues to rise sharply, China’s import of iron ore in July was 91.01 million tons, up 15.83 million tons, or 21.06%.At the end of July, imported iron ore port stocks rose to 116.42 million tons. 

As the world’s largest steel producer and steel consumption market, China is also the world’s largest iron ore importer.However, due to the high concentration of mining enterprises and low concentration of steel enterprises, steel enterprises have been in a weak position. 

In view of this, CISA believes that the current pricing mechanism has defects in maintaining the balanced development of industrial chain interests, which is not conducive to the long-term mutual benefit and win-win situation of upstream and downstream industries, and still needs to be further improved.In addition, whether there are non-supply and demand factors in the pricing mechanism is worth paying attention to. 

“Recently, the trade situation has been upgraded, and the impact on the global economy is still emerging, but China has also taken a series of measures to expand consumption and stabilize growth, and steel demand is expected to remain stable.Steel companies should maintain their concentration, further control the production pace and maintain market stability.”The steel association said .