Affected by many unfavorable factors in the international market and the downturn in the domestic real estate market, my country's steel demand has weakened rapidly, the supply decline is smaller than the demand decline, the steel industry has entered a new round of downward cycle, and enterprises are facing difficulties in operation. In 2023, the total profit of the ferrous metal smelting and rolling processing industry will be only 56.5 billion yuan, and the average profit margin will be only 1.33%, which is significantly lower than the average level of industrial manufacturing. According to statistics from the China Iron and Steel Association, in the first quarter of this year, the average profit margin of key steel enterprises was 0.58%, and the operating performance of the steel industry further declined.

What is the current development situation of the steel industry?

my country's steel industry has entered the peak platform area from the rapid growth stage

With the advancement of my country's industrialization and urbanization process, the peak of steel demand has passed, and my country's steel production has entered the peak platform area from the rapid growth stage, and will begin to decline after high-level fluctuations. According to Chenery's industrialization stage theory, a per capita GDP of more than US$10,800 is an important sign that a country has entered the post-industrial period. my country's per capita GDP in 2021, 2022, and 2023 will be US$125,510, US$127,410, and US$12,700, respectively. my country's steel consumption has entered the peak platform area. Although the annual steel consumption will remain at a high level, it will fluctuate and decline in the medium and long term. It is estimated that by 2025, my country's steel demand will be about 870 million tons, a decrease of 2.2% from 2023; by 2030, my country's steel demand will be about 840 million tons, a decrease of 3.4% from 2025.

According to Fan Tiejun, Party Secretary and President of China Metallurgical News Agency, "At present, my country's steel industry has entered a deep adjustment stage of stabilizing growth, controlling total volume, adjusting structure, and promoting transformation. The industry structure will face reshuffle and reshaping."

Steel exports will remain high

According to data from the National Bureau of Statistics, from January to March this year, my country's crude steel output was 256.55 million tons, a year-on-year decrease of 1.9%; pig iron output was 213.39 million tons, a year-on-year decrease of 2.9%; steel output was 336.03 million tons, a year-on-year increase of 4.4%.
According to data from the General Administration of Customs, from January to April this year, my country exported 35.02 million tons of steel, a year-on-year increase of 27%; imported 2.405 million tons of steel, a year-on-year decrease of 3.7%. This shows that under the background of sluggish demand in the domestic steel market, steel companies have turned their attention to overseas markets, and it is expected that the annual steel export volume will remain high. However, this export trend of "increased volume and falling prices" is unsustainable, and the risk of intensified trade frictions must be taken seriously.

High strength, lightweight, corrosion resistance, and long life have become the development direction of steel

The renewal of equipment, automobiles, and home appliances, the construction of new infrastructure related to people's livelihood, and the promotion of urbanization will put forward new requirements for the strength, lightweight, corrosion resistance, and long life of steel. Although the total demand for steel in my country will be stable or slowly declining for a long time in the future, the product structure will continue to adjust in line with the demand trend of downstream users. For example, Japan's crude steel output has remained at around 100 million tons in the past 50 years, but the output of special steel has increased, the output of ordinary steel has decreased, and the product structure has been changing.

Energy intensity and carbon emission reduction will become the biggest pressure for the development of steel enterprises

The goal of the 2024 "Government Work Report" mentioned that "energy consumption per unit of GDP will be reduced by 2.5%, and the quality of the ecological environment will continue to improve." The steel industry is an important field for reducing carbon emissions. According to the "14th Five-Year Plan" outline released in March 2021, China's goal is: by the end of the "14th Five-Year Plan" period (2021-2025), energy consumption per unit of GDP (gross domestic product) and carbon dioxide emissions will be reduced by 13.5% and 18% respectively. It is expected that unit energy consumption and unit carbon emissions will be the biggest pressure for the development of steel enterprises in the future.

This year is a key year for the "14th Five-Year Plan". From 2021 to 2023, my country's energy intensity has only decreased by 3.3%. This year's target is 2.5%, and next year's target is to achieve a 7.7% reduction. Similarly, the reduction target of carbon dioxide emission intensity per unit of GDP is also difficult to achieve. The 5% reduction target has been achieved in the past three years, and the total reduction target this year and next year is to achieve a 13% reduction (6.5% reduction per year).

How should steel enterprises respond?

Drive the development of new quality productivity with scientific and technological innovation

Technological innovation is the core driving force for promoting high-quality development of the steel industry. The 2024 "Government Work Report" mentioned that it would focus on supporting scientific and technological innovation and the development of the manufacturing industry. In the future, the country will encourage and support enterprises to invest in technological innovation.

For example, Nangang's R&D investment has exceeded 3% of its operating income for many consecutive years, established 45 high-end R&D platforms, carried out more than 500 industry-university-research projects with scientific research institutes, and undertaken more than 40 major national projects. In 2023, Nangang Co., Ltd.'s R&D investment reached 2.402 billion yuan, 30 new products were developed, the net profit attributable to shareholders of listed companies reached 2.125 billion yuan, and the operating income reached 72.543 billion yuan.

Green and low-carbon have become the core competitiveness of enterprises

The realization of the country's "dual carbon" goals is a huge challenge and a huge opportunity for the steel industry. Many steel companies have invested heavily to explore new smelting processes for producing low-carbon emission steel. In addition, the announcement of the EU's CBAM (EU Carbon Border Adjustment Mechanism) has also prompted the green and low-carbon transformation of the steel industry.
As the concept of green and low-carbon penetrates into various industries, downstream users have more and more requirements for low-carbon emission steel. Automobile companies such as Northern Benz, BMW and Chery require steel companies to provide low-carbon emission steel plates.

Hesteel Group uses the rich distributed energy resources in Zhangjiakou, Hebei Province to explore cutting-edge technologies for hydrogen energy utilization, and builds the world's first 1.2 million tons of hydrogen metallurgy demonstration project to achieve continuous production of green DRI (direct reduced iron) products. This technology can reduce carbon emissions by 70% per year compared with traditional processes, while reducing sulfur dioxide, nitrogen oxides, and smoke and dust emissions by 30%, 70%, and more than 80% respectively. Each ton of direct reduced iron produced can capture about 125 kilograms of carbon dioxide. Based on the support of hydrogen metallurgical technology, Hesteel Group and BMW will start green and low-carbon steel supply chain cooperation in 2023, and it is agreed that starting from mid-2023, BMW Shenyang Production Base will gradually use Hesteel Group's low-carbon emission automobile steel for mass-produced models.

In addition, Baosteel cooperates with Mercedes-Benz, Chery and other companies to build a green and low-carbon automobile supply chain, and Baosteel Co., Ltd. and Schaeffler Group build a green steel supply chain.
Extending to the downstream industrial chain

At present, the comprehensive deep processing ratio of steel in developed countries has reached more than 50%, among which wire, bar, pipe and plate account for about 60%, 40%, 30% and 70% respectively, while the deep processing ratio of steel in my country is about 27%, so it can be extended to the downstream industrial chain. This requires steel enterprises, downstream enterprises, steel traders, logistics enterprises, and even IT (information technology) enterprises to become the main body of the steel enterprise industrial chain construction, and they can form different forms of joint ventures and cooperative enterprises. The relationship between enterprises is no longer a relationship of competing for resources and consuming each other, but to promote the relevant entities in the industrial chain to achieve common goals in a coordinated manner, build an industrial ecosystem of multi-party cooperation, multiplied benefits, mutual benefit and win-win, promote the extension of the industrial chain of steel enterprises, and achieve healthy development.

Realize the substitution of high value-added imported products

As the world's largest steel producer, some of my country's high-tech and high-quality steel products still need to be imported every year. For example, in 2022, China's steel production exceeded 1 billion tons, and it still needed to import more than 8.5 million tons of special steel; in 2023, although my country's imported steel decreased, there were still 7.65 million tons of special steel to be imported.
Take Hunan Iron and Steel Group as an example. The crude steel production capacity of Hunan Iron and Steel Group is more than 20 million tons. In 2023, the group achieved revenue of 236 billion yuan, a year-on-year increase of 7.2%, and a profit of 10.4 billion yuan, ranking among the top 500 in the world for two consecutive years. This is mainly due to its in-depth adjustment of its product structure. In 2023, Hunan Iron and Steel Group achieved import substitution of 80 types of steel. Among them, Valin Steel's R&D investment in 2023 reached 6.831 billion yuan, an increase of 378 million yuan from 2022, accounting for 4.2% of the total operating income of the year, and 30 new imported steel types were added. The sales volume of Valin Steel's high value-added steel increased from 38% in 2017 to 63% in 2023, and the sales volume in 2023 reached 16.83 million tons.
Creating steel demand for new application scenarios

Only by creating steel demand for new application scenarios can the steel consumption structure be optimized. Steel companies should constantly explore demand growth points in emerging industries. For example, strengthen services and supply to manufacturing, new energy and high-end equipment to meet their demand for high-quality steel. Specifically, in terms of core metal materials for new energy vehicles, focus on electrical steel; with the rapid development of the photovoltaic industry, focus should be placed on steel sections, medium and thick plates, hot-rolled thin plates and other varieties used in photovoltaics.

Take Taigang as an example. It aims at early intervention in the hydrogen energy industry and opens up new demand points through the domestic launch of stainless steel products for liquid hydrogen. Globally, the storage and transportation of hydrogen energy is mainly high-pressure gas and low-temperature liquid. Taigang has developed a series of stainless steel materials (plates, tubes, and sections) for liquid hydrogen containers. The chemical composition, ultra-low temperature performance and other indicators of the products fully meet the stringent requirements of the liquid hydrogen environment, contributing to the green transformation and upgrading of my country's energy.

Transformation to other tracks such as diversified industries

As my country's urbanization process and infrastructure construction are coming to an end, steel demand is gradually decreasing, and industry profits are getting thinner and thinner. Enterprises that mainly use construction steel can consider actively withdrawing and transforming to other tracks.
For example, the diversified industries of Nangang have become a profit highlight, which is one of the reasons for the good performance of Nangang in 2023. Nangang New Industry has gathered 53 subsidiaries, mainly core industry platforms such as Jinheng Technology, Jinyuansu, Baizhong Environment, Gangbao Co., Ltd., and Indonesia Base. It has also built a coke project base in Indonesia with an annual output of 6.5 million tons of coke. The profits of Nangang New Industry have gradually increased. From 2016 to 2023, the overall revenue compound growth rate of the new industry is 44%, and the profit compound growth rate is 35%. In 2023, Nangang Group achieved revenue of 202.8 billion yuan, profit of 3.05 billion yuan, and profit and tax of 4.5 billion yuan, ranking 66th among the top 500 manufacturing enterprises in China.