China's steel output, enterprises poised for growth in second quarter

China's steel production is forecast to maintain steady growth in the second quarter of this year, and so will the performance of steel enterprises, primarily because of growing demand, an official of the China Iron and Steel Association (CISA) said.

Qu Xiuli, deputy head of the CISA, said the growth of both steel production and steel enterprises is due to the fact the second quarter is peak demand season, with steel imports and exports estimated to show a small increase during that period.

According to a recent report released by the CISA for the first quarter of this year, China's pig iron production reached 195 million metric tons, up 9.29 percent on a year-on-year basis. Crude steel production rose 9.92 percent year-on-year to 231 million tons, while rolled steel output vaulted 10.82 percent year-on-year to 269 million tons.

National steel exports reached 17.03 million tons, the first increase after a three-year decline and 12.6 percent higher than the same period last year. National steel imports dropped by 16.1 percent year-on-year to 2.9 million tons. That meant national net steel exports stood at 14.13 million tons, equivalent to 14.72 million tons of net crude steel exports, having climbed 21 percent year-on-year.

The report showed steel prices slowly recovering. By the end of March, the China Steel Price Index reached 109.69 points, 2.4 percent up from the level at the start of this year. Steel prices had fallen rapidly in November, and only began to gradually rise in January.

The industry also saw a decline in the performance of steel enterprises.

The CISA said the net profit of steel enterprises slumped 30.2 percent year-on-year to 37.5 billion yuan ($5.46 billion). The profit ratio of sales by member steel enterprises was 3.87 percent, 2.39 percentage points lower than the same period last year. By the end of March, their asset-liability ratio dropped 1.94 percentage points year-on-year to 64.08 percent.

The CISA said sales revenues in the first quarter of member enterprises totaled 968.5 billion yuan, 12.81 percent higher than the same period last year. Cost of sales reached 877.4 billion yuan, growing 18.18 percent year-on-year.

Wang Guoqing, director of the Lange Steel Information Research Center, said since April, both steel production and prices went up, and the speed of destocking was relatively fast, demonstrating the market was mainly demand-driven.

Although demand is high, many experts are worried that rapid expansion of steel production may upset the balance between supply and demand, along with the stable operation of the industry.

"Now it is high time to establish a long-term mechanism to prevent overcapacity. The recovery of the steel industry resulted from the structural supply side reform brought about by the reduction of overcapacity and environmental protection. In the past, it was mostly driven by fixed investment and consumption growth," Li Xinchuang, president of the China Metallurgical Industry Planning& Research Institute, said in an interview with Xinhua.

He said if producers don't take advantage of the current momentum to adjust the structure, the steel industry is likely to face problems again. "Not only will the previous efforts of cutting overcapacity give up, the difficulty of further adjustment in the future will be greater."

Market insiders said as the industry enters a key turning point, steel enterprises should be more rational and aware of risks, and not blindly pursue higher production.