In an interview held on October 25, 2023, with Jiang Wei, the Vice President of the China Iron and Steel Association (CISA), we discussed the current challenges and future direction of the Chinese steel industry.
This year, the profit margin for Chinese steel companies has plummeted, with the total profit dropping by over half in the first three quarters, resulting in an average profit rate of only 0.64%. Jiang provided insights into how these companies can navigate through this adjustment period characterized by reduced growth and focus on sustainability and digital transformation.
According to recent data released by CISA, key steel enterprises reported a cumulative operating income of 4.54 trillion yuan, which marks a 6.87% decline compared to last year. Operating costs also decreased to 4.31 trillion yuan, reflecting a drop of 6.14%. However, the reduction in income outpaced that of costs, leading to a total profit of 289.77 billion yuan—a staggering 56.39% decrease year-on-year.
Jiang noted that since the beginning of the year, the steel sector has clearly entered a phase of reduced development and stock optimization. He pointed out that apparent crude steel consumption has decreased by 6.2% nationwide. In August and September, this consumption fell sharply by 13.5% and 11.1%, respectively, indicating significant supply-demand imbalance and heightened pressure on market stability.
Tang Zujun, another Vice President at CISA, emphasized that the primary challenges facing the steel industry stem from a substantial supply-demand mismatch, compounded by persistently high raw material costs. He highlighted that while production levels were robust—exceeding 1 billion tons annually from 2020 to 2023—apparent consumption has been declining, forecasted to drop from a peak of 1.048 billion tons in 2020 to about 933 million tons in 2023.
Tang elaborated that with urbanization in China surpassing 66% and infrastructure needs stabilizing, the demand for steel will gradually decrease, stabilizing around 800 million tons by 2035. He noted, “In short, reduction in production is an inevitable trend.”
When asked about the industry’s path toward transformation, Tang outlined the “four transformations” that he believes are crucial: upgrading to higher-end products, adopting greener practices, embracing automation and digital technologies, and expanding internationally. He urged steel companies to strengthen strategic planning, innovation, cost management, and risk resilience.
Jiang further emphasized the necessity for companies to recognize the unique and severe nature of the current situation, advocating for a rational approach to the industry’s adjustment. He highlighted the importance of adhering to the principles of “production based on sales, efficiency based on production, and current-based sales” to stabilize the market and promote quality growth.
Currently, the demand for steel in China is increasingly shifting towards the manufacturing sector, with expectations that both manufacturing and construction will each account for roughly half of the steel demand in 2023. Jiang reiterated that China remains the largest steel market in the world, consuming over 800 million tons annually, and as long as companies respond rationally to market conditions, the Chinese steel sector will exhibit resilience and robust potential moving forward.
