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Structural problems still exist in the steel industry

    China steel association made a conclusion that between mainland key 77 large and medium-sized steel enterprise, the first nine months of this year total profit has grown 27.7% than last year, sales profit margins with an average of only 2.99%, after deducting electricity and investment income increases, the individual enterprise own mine, and rare earth products sales and other factors, the industry actual average profit margin is only about 1.5%.
    Steel pipe industry operation is not good, which can be spied out by the the industry and the domestic whole industry data. January to September the national scale industrial enterprise profit accumulated more than 27% growth in years alone, although a decrease of 28.2% in January to August, but the number is still far from clear of steel enterprises profit margins, but the national industry profit margins are somewhere between 6-7%, also greatly superior digital steel, steel enterprise operating in that renewal difficulties.
    Excess capacity drag low the product price
    In addition, China steel association also pointed out the phenomenon that steel fixed asset investment still appear too fast, in the first nine months, the steel fixed investment got a record 19.7% of the growth in years, to 311.7 billion yuan RMB. The problem of steel excess capacity long troubled industry development, in addition to press the product price, but also reduce the enterprise production efficiency.
    Moreover, the tinplate downstream inseparable demand of shipbuilding, automobile, machinery, and estate development, all have been effected by global economic slowdown, respectively domestic demand slowing down, tightening monetary policy, or control policies, then affects the steel demand, and related products bargaining power. What is more, the main raw materials steel iron ore, the prices are high, greatly limits the gross margin of steel products, and also weakened steel enterprises of the price incentives and space.
    The debt crisis is endless, the mainland for import and export growth slowed continually, and the market recently use the sentence said by premier Wwen Jiabao that “timely and measurable presetters fine-tuning” , and constantly look forward to mainland China. Comprehensive ease of money, but depends on the mainland CPI fell on speed, and real estate control results, stable monetary policy can still expected to continue in short period of time, to the detriment of industrial production and fixed asset investment growth, steel material needs to have a turnaround.
    The other mainland iron ore prices recently eased back, Xinhua-China’s iron ore price index show that by the end of October 31,, the grade of iron ore import prices by 63.5%, compared with the early October, a record close to a thirty percent fall. 
    China steel association is now discussing new iron ore pricing mechanism with three global iron ore suppliers, including freshwater valley, Rio tinto and BHP. They hope to low the iron ore import prices. But the negotiations are going on, plus the mainland iron ore stock still high, up to 93.75 million tons last month, and most of them were high inventory. To digestive this stock, we believe that it must a period of time, meaning that the steel enterprises in the short term is still need to endure high cost pressure.
    Poor demand and low enterprises gross margin
And in poor demand prospects, rate of margin still in low place. Even if the state department issued a steel work letter “12th-5 years” planning, improved industry concentration, but the excess capacity structural problems are not solved overnight. Steel stocks still is not a appropriate chpice for investment.

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