China's struggling steelmakers will not be financially better off in the short run, and more mergers, acquisitions, restructurings and bankruptcies could be expected in the industry, said Zhang Changfu, deputy director of the China Iron & Steel Association.
The entire sector has sunk into losses and has become the worst performing industry in China amid uncertain steel prices throughout the year, Zhang explained.
The 77 largest steelmakers produced ¥246.69 billion worth of products and sold ¥260.35 billion worth of goods in January, down 4.6% and 8.5% respectively from a year ago, earlier data from the association showed. What was worse was that the industry reported a net loss of ¥2.18 billion during the month.
For the whole of 2011, the 77 mills reported ¥3.62 trillion in revenues and ¥87.53 billion in gross profits, up 18.7% and down 4.5% respectively from the year before.
China's crude steel output rose 9% to 683 million tons in 2011 after fixed asset investment in the industry expanded 15.5% to ¥511 billion, the association said. The nation's crude steel output represented 45.5% of the global total, up 0.8 percentage points from 2010.
Rising iron ore prices and a market glut caused by excess capacity were blamed for the miserable conditions. In the first nine months of 2011, China paid $22 billion more for iron ore imports compared to the same period a year ago.
This disadvantage weakened in the first two months of 2012, when China imported iron ore at an average price of $136.4 per ton, down 12.9% from the same period a year ago. Unfortunately for China's beleaguered steel industry, a mining tax set to take effect on July 1 in Australia, which contributes 40% of China's iron ore purchases, is raising the specter of pricier iron ore again.
$1 = ¥6.29