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The steel industry still needs to be alert to the rebound in production capacity

  • Source:Economic daily
  • Release on:2019-02-15
Recently, the data released by the National Development and Reform Commission showed that the steel industry achieved a profit of 470.4 billion yuan in 2018, an increase of 39.3% over the previous year. The significant increase in the efficiency of the steel industry has caused widespread concern.

2018 is a year in which the steel industry has achieved steady and sound development, which is highlighted in the areas of marked improvement in the market environment, full play of superior production capacity, and significant improvement in corporate benefits. Data show that from January to December 2018, the national production of pig iron, crude steel and steel were 771.05 million tons, 928.26 million tons and 1105.52 million tons, respectively, up 3%, 6.6% and 8.5%.

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“In 2018, the steel industry basically achieved a balance between production and demand.” Sinosteel’s 2018 rotation president Yu Yong pointed out that steel production continued to grow, both to fill the market space after the removal of “strip steel” and to increase domestic market demand. And the release factor is too fast.

The relatively stable price of steel also provides strong evidence. In the first 10 months of 2018, CSPI (China Steel Price Average Index) fluctuated between 110 and 120 points.

Due to the better market situation, the industry's operating conditions have improved significantly. From January to December 2018, the China Steel Association members achieved sales income of 4.11 trillion yuan, a year-on-year increase of 13.04%; profit of 286.272 billion yuan, a substantial increase of 41.12%; asset-liability ratio of 65.02%, down 2.63 percentage points year-on-year.

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The profitability of the steel industry improved significantly, mainly due to supply-side structural reforms. In 2018, the steel industry overfulfilled the annual target of 30 million tons, and completed the “15th Five-Year Plan” of the “13th Five-Year Plan” for steel production capacity two years ahead of schedule.

In 2018, China continued to maintain a zero-tolerance and high-pressure situation for “strip steel”, and unblocked the channels of reporting, found that they were together, investigated and notified together, strengthened the role of negative warnings, and strictly prevented the resurgence of “strip steel”; It is strictly forbidden to increase steel production capacity. Through supervision and supervision and on-site inspection, a number of typical cases of new capacity violations were investigated.

However, the impulse to violate the new capacity is still there. The problems of environmental short board, unreasonable layout and weak innovation ability still plague the industry. The China Iron and Steel Association stressed that the focus of the supply-side structural reform in 2019 should shift from resolving excess capacity to preventing the resumption of production capacity, preventing the resurgence of “strip steel” and prohibiting new capacity. The main direction is from total capacity. The adjustment turned to the existing capacity structure optimization, layout adjustment and mergers and acquisitions.

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China Steel Association proposed that it will take 3 to 5 years to reduce the asset-liability ratio to below 60%, make full use of favorable opportunities, and take more measures and leverage. The industry believes that if we do not change the way of relying on scale expansion in the past, the industry may still return to the old road of oversupply, and the benefits are difficult to last.

“As a basic industry supporting the development of the manufacturing industry, the steel industry should take the lead in achieving high-quality development.” Yu Yong pointed out that the majority of steel companies should study their own transformation and upgrading strategies and paths in light of their own characteristics. Strengthening the ability of independent innovation and improving the scientific and technological content of products is a key measure for the transformation of China's steel industry from large to strong.