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Rational View Of Steel Price Rose

Aug. 30, 2018
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In July, the China Steel Association's steel price index rose for the fourth consecutive month. After falling below 4,000RMB/ton in March, the price of spiral steel rose sharply, rising to more than 4,500RMB/ton. The steel industry has finally enjoyed a good day of simultaneous price and quantity rises, supply and marketing flourish.Several happy several sorrow, steel prices which continued to rise made the costs of shipbuilding, machinery who use much steel higher.

What do you think of the rise in steel prices?We need to see the positive aspects first. Around 2012, the steel industry gradually fell into overcapacity and continued to be depressed, prices once fell and fell. Since 2016, China has made great efforts to reduce production capacity and resolutely clean up the substandard steel, which has led to a marked increase in the utilization rate of production capacity and a significant improvement in the relationship between supply and demand throughout the industry. In the overall view, the increase in steel prices is a reasonable return, which will help the long-term development of the steel industry. This is precisely the purpose of promoting structural reforms.

At present, although prices and profits of corporate have risen, the profit margins of steel companies just basically reached the average level, just "food and clothing." The task of reducing excess capacity is close to closing soon, supply and demand are basically stable, and it is difficult to maintain a sustained large increase in prices in the later period.

So what about the pressure on downstream? In fact, in the market economy, the price fluctuation of raw materials should have been considered in the cost, and the cost transmission between industry chains and the uneven profit and loss are normal. The rise in steel prices could lead to increased pressure of some downstream, but it also helps a group of companies with higher value added, better cost management and more competitive products stand out, so as to speed up the industry survival of the fittest.This shows the steel price rise in the recent period should be the normal fluctuations after the industry's operation returns to a reasonable range. However, we should also be proactive and effective in dealing with a series of market changes that may be brought about by the rise in steel prices.

On the one hand, steel companies should remain sober and prevent overheating.The recovery of the market gave the steel industry a precious opportunity to recuperate. Don't get carried away by price increases at this juncture.We should curb the impulse to expand capacity, hold the rhythm of production growth, and avoid repeating the mistakes of excess capacity. At the same time, we must seize the favorable opportunity to do the things that we have no ability and energy to do in the past few years. For example, actively enlivening existing assets, disposing of non-performing assets, reducing the occupation of funds, and reducing the debt ratio so that it can be light in the future; Another example is to strengthen technological innovation, improve product performance, and expand high-end varieties in order to add impetus to future development.

One of the most urgent tasks is to increase investment in environmental protection and achieve green development. "Government Work Report" of 2008 proposed to promote ultra-low-emission transformation of steel and other industries. We will improve standards for pollution discharge and meet the standards within a time limit. In May, the Environmental Protection department also proposed that steel companies in Beijing,Tianjin, Hebei and other places should strive to complete the transformation by the end of October 2020. It is conceivable that the environmental protection standards will only get higher and higher in the next two years, and the supervision will only become stricter. The sooner the company is reformed, the more active it will be.

On the other hand, relevant parties should also remain vigilant to prevent excessive gains.The current rise in steel prices not only benefits from the macro situation and the improvement of supply and demand patterns, but also to a certain extent is affected by environmental protection restrictions. In the second half of the year, production restrictions may increase as the heating season approaches. In this regard, while resolutely winning the battle to defend the blue sky, relevant parties should not limit production fully and avoid unnecessary external influence on the market. Not long ago, Hebei Province proposed that the implementation of differentiated peak production in key industries such as steel and iron according to the emission performance level, and the implementation of ultra-low-emission production lines or equipment in principle do not implement the wrong peak production, such differentiated policies are worth learning.We hope that all parties will work together to consolidate the hard-won gains in reducing excess capacity and put the steel industry on the track of sustained and healthy development.

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