Analysis of the impact of eliminating backward production capacity on the steel market

Judging from the elimination of backward production capacity, the target of eliminating backward production capacity in the 18 industries announced this time has been improved compared with that in May. Among them, the ironmaking capacity was 31.22 million tons and the steelmaking capacity was 27.94 million tons. Compared with the phase-out target in May this year, it increased by 4.69 million tons and 1.67 million tons. At the same time, the elimination index of ironmaking capacity has also been increased to 450 cubic meters, which means that the blast furnace below 450 cubic meters will be completely eliminated. Compared with the goal of eliminating backwardness last year, we can also see that this elimination is mainly aimed at steelmaking capacity, and the elimination of ironmaking capacity that has achieved results in the previous period has not decreased. This is mainly because China's steel output remained high in the first half of this year, while the steel industry's profitability was too low. In the first five months of this year, domestic crude steel output was 290 million tons, up 8.5% year-on-year. In the second half of June, the daily average crude steel output in China reached 20.18 million tons, a record high. However, from January to May this year, China's steel industry sales profit rate is only 2.4%, far lower than the current one-year deposit rate of 3.25%, becoming the industry's lowest profit industry. On July 11, the Ministry of Industry and Information Technology announced the list of 18 enterprises in the industrial sector that eliminated backward production capacity in 2011, involving a total of 2,255 enterprises. In terms of industries, industries such as cement, iron making, steel making, coke and ferroalloy still top the list. The Ministry of Industry and Information Technology requires all localities to take effective measures to ensure that the backward production capacity of enterprises listed in the announcement list is completely eliminated before the end of 2011, and the inspection and acceptance and completion of the target tasks are announced. Then, what impact will this elimination of backward production capacity have on the future steel market? This article briefly analyzes this. Table 1 Targets for elimination of backward production capacity: 10,000 tons Analysis of the impact of eliminating backward production capacity on the steel market

Source: Ministry of Industry and Information Technology, MRI finishing From the perspective of the enterprises involved, this list of eliminated backwards, although involving a number of listed companies, such as Jinan Iron and Steel 350 cubic meters of blast furnace * 6, Hebei Iron and Steel 30 tons of converter * 3, and so on. However, most of the enterprises on the list are still small and medium-sized private steel enterprises, and these small and medium-sized enterprises are mostly based on production line snails. Therefore, in the late third quarter, under the dual role of the construction of affordable housing and the strengthening of the backward policies of the country, construction steel may go out of a new wave of rising prices. For listed companies, the impact on the company as a whole is small because the proportion of backward production capacity is small.

From the perspective of the regions involved, the elimination of backward production capacity involves 26 provinces, autonomous regions and municipalities in the country. Among them, Hebei, Shanxi and Henan are the most eliminated steelmaking capacity. The steel production capacity in the three provinces exceeds 10% of the province's total steel production in 2010. This may lead to a structural shortage of some steel products in some areas in the later period, which will push up the price of some steel products.
Table 2 Targets for eliminating backward production capacity by region

Analysis of the impact of eliminating backward production capacity on the steel market
Source: Ministry of Industry and Information Technology, MRI finishing At present, the steel market is at the bottom of the stage, and the introduction of backward policy is expected to promote the rise of steel prices and improve the operating conditions of steel enterprises. In terms of varieties, the effect on long products is greater than that on plates. And with the implementation of the elimination of backward production capacity policy, the later impact will have further substantial manifestation. On the other hand, the elimination of outdated production capacity will have a certain impact on steel production, thereby reducing the demand for raw materials, which will help to curb the upside of iron ore prices. In addition, the financial market also fully affirmed this elimination of backward policies. On the day of the elimination of the backward list, the term 1110 ended its consolidation for four consecutive trading days, up 0.75% on the day. However, from the current situation, although the government has been demanding the elimination of backward production capacity, the production capacity has continued to grow, which shows that local government is particularly important for the implementation of the policy. In addition, the taxation, employment and distribution of benefits involved in the elimination of backwardness will also eliminate the process of backward production capacity. Therefore, after the publication of the rules and lists for the elimination of backward production capacity, the implementation of the policy should be closely monitored in the future.

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