Steel industry margins remain flat for 2014

Drop in iron ore, coal prices little help to firms

Chinese steel mills have seen their sales margins fall below 1 percent as they dealt with a transforming domestic economy with a slower growth rate and an overall decline in iron ore and coal prices, China Iron and Steel Association (CISA) said on Thursday.

China produced 823 million tons of crude steel in 2014, up 0.89 percent from 2013, but the sales margin of major steel makers stood at 0.85 percent, the lowest among all industrial sectors in China, according to a CISA report released at a press conference in Beijing on Thursday.

China's iron ore imports made up 78.5 percent of the total supply in 2014, with iron ore imports increasing by 13.8 percent to 933 million tons.

In 2014, the prices of iron ore imported to China averaged $100.42 per ton, down $29.2 per ton compared with that of 2013, the CISA report showed.

"The rollouts of market-based mechanisms such as domestic iron ore futures platform, steel products futures platform, domestic iron ore price index and spot price trading in recent years proved to be a successful counterweight to global mining giants' monopoly," Zhu Jimin, executive vice president of CISA, told the Global Times on Thursday.

However, lackluster growth in the real estate sector, manufacturing, and slower fixed-assets investment means the industry still faces oversupply, which has weighed on steel prices, Zhu told the press conference.

The average price of eight major categories of steel products fell by 10 percent in 2014, according to the CISA report.

Price of rebars, which are used in the real estate sector, saw the sharpest decline of 12.9 percent. The average price of galvanized steel sheets, which are used in the automobile manufacturing industry, was down 6.78 percent.

"The prices of steel products were down due to shrinking demand, offsetting advantages from the decline in prices of raw materials," said Wang Guoqing, a researcher with industry portal lgmi.com, noting many steel mills have worked on improving efficiency.

Steel products exports stood at 93.78 million tons in 2014, up 50.5 percent year-on-year, CISA data showed.

Zhu said steel products exports only had an indirect effect on easing the oversupply issue as a number of factors weighed such as the level of global economic recovery and the seaborne freight rate.

"The government's stance is to encourage the export of high-end steel products while deterring that of low-end products, as the latter pollutes the environment and has weak profitability," Wang said.

China imported 14.43 million tons of high-end steel products in 2014, up 2.5 percent from a year ago.