Steel firms see their fortunes brighten in October

Updated: 2012-11-15 10:20

By Du Juan (China Daily)

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China's steel industry began to make a profit again in October after months of losses, a senior official said on Wednesday.

Wang Xiaoqi, vice-chairman of the China Iron and Steel Association, said market demand is likely to increase in the fourth quarter and lead to the industry's being in the black by year's end.

"The domestic steel industry has gone through one of its most difficult times," said Wang.

Steel firms see their fortunes brighten in October

China National Cereals, Oils and Foodstuffs Corp, or COFCO, plans to accelerate its expansion program abroad to meet growing demand at home. 

He said the industry will eliminate its deficits by the end of the year, noting that iron ore prices are becoming stable and the demand for steel is slowly increasing.

Chinese steel companies have been harmed by overproduction, increasing prices of iron ore and a falling demand.

China's large and medium-sized steel companies reported a total loss of 3.2 billion yuan ($514 million) for August, which some have deemed the "darkest month for the industry" this year.

But steel companies saw their fortunes improve a bit the following month, when they reported a total loss of about 2.4 billion yuan, Wang said.

"The price of iron ore will be on a declining trend in the long term," said Li Xinchuang, head of the China Metallurgical Industry Planning and Research Institute. "However, the rate of decline is decreasing."

The cost of imported iron ore decreased by 18.43 percent during the first nine months of the year, the association said.

By the end of October, the country had imported 607.12 million metric tons of the ore, up 8.9 percent year-on-year, customs figures show.

The National Development and Reform Commission approved a series of infrastructure projects in September in an attempt to boost the economy.

Among them are 25 urban rails, 13 highways and 22 railways. For the railway projects, the planned amount of fixed-assets investment has increased from 516 billion yuan, set at the beginning of the year, to 630 billion yuan.

"The demand for steel products in the fourth quarter will increase quickly compared with the first three quarters because of increasing investments in newly approved projects," the association said.

Even so, overcapacity still exists and will take time to overcome, Wang said.

Since the beginning of the year, the association has been encouraging its member companies to reduce production to a reasonable scale and take steps to prevent detrimental competition in the market.

According to the association, large Chinese steel companies' daily output decreased to 1.51 million tons, or by 5.39 percent, in the last 10 days of October.

In the first nine months, the country produced 542 million tons of crude steel, an increase of 1.7 percent year-on-year.

"It's not easy to reduce overcapacity," Wang said. "That is related to the companies' structure and millions of jobs."

Earlier this month, Ba Shusong, vice-president of the Development Research Center for the State Council and chief economist of the China Banking Association, said overproduction in some industries, such as the steel industry, will make policy makers more cautious about taking large measures to boost the economy.

He also predicted China's economy will exhibit a modest rebound in the fourth quarter.

At the same time, industrial analysts called on steel companies to take steps to avoid rapidly increasing their output for the time being.

"Even though downstream demand is increasing, steel companies still have to put reasonable limits on their output to prevent an oversupply in the market," said Xu Xiangchun, a senior analyst at the industrial information provider