The bright sunshine cannot dispel the clouds hanging over the steel industry, which is still struggling in dire straits. An insider from the China Iron and Steel Association revealed to a reporter from the Economic Reference Daily on the 1st that key large and medium-sized steel enterprises achieved sales revenue of 310.158 billion yuan in May, a decrease of 2.05% compared to the previous month; Realize a profit and tax of 7.412 billion yuan, a decrease of 17.16% compared to the previous period; The realized profit was only 1.403 billion yuan, a decrease of 388 million yuan or 21.66% compared to the previous period. It is worth noting that in May, the loss making enterprises incurred a loss of 2.139 billion yuan, an increase of 8.8% compared to the previous month, and the loss area reached 31.25%.

This is the fifth consecutive month of poor performance in the steel industry, following negative steel profits in early January. According to statistics obtained by reporters from the China Iron and Steel Association, from January to May, large and medium-sized steel enterprises achieved a cumulative sales revenue of 1.495142 trillion yuan, a year-on-year decrease of 1.6%; Realize a profit and tax of 32.715 billion yuan, a year-on-year decrease of 58.47%. It is worth mentioning that from January to May, large and medium-sized steel enterprises achieved a profit of only 2.533 billion yuan, a year-on-year decrease of 41.56 billion yuan, a decrease of 94.26%; The loss making enterprises incurred a loss of 11.749 billion yuan, an increase of 27.38 times year-on-year (compared to only 414 million yuan in the same period last year), with a loss coverage of 32.5%.

A person in charge of the China Iron and Steel Association told a reporter from the Economic Reference Daily over the phone that on the one hand, steel prices have dropped significantly, and on the other hand, costs have risen sharply. The "one drop, one rise" is squeezing the already meager profit margin of the steel industry, causing further decline in the economic efficiency of the steel industry. In addition, multiple factors such as sluggish downstream industry demand and domestic overcapacity are squeezing, and the sales gross profit of most varieties of steel enterprises is in a loss state.

The reporter learned that steel stocks have become the main force in breaking through the net worth of the stock market. As of now, there are more than 10 stocks in the steel sector with a price to book ratio less than 1, including Anyang Iron and Steel, Angang Steel, Valin Iron and Steel, Baosteel, and Wuhan Iron and Steel. Among them, Anyang Iron and Steel has the lowest market to book ratio, less than 0.6 times.

The above-mentioned person in charge told reporters that since the beginning of this year, due to the impact of the global macroeconomic environment, both domestic and international steel demand have shown a weak state, especially the slowdown in domestic real estate regulation policies and investment growth in new infrastructure projects such as railways. In addition, downstream manufacturing industries such as automobiles, shipbuilding, machinery, home appliances, and light industry continue to have low steel demand, leading to a decline in steel prices.

On the other hand, the cost of raw materials, mainly iron ore, is "easy to rise but difficult to fall" and still remains high. A senior executive of a large domestic steel company admitted to reporters that in the first three quarters of 2011, the prices of upstream bulk raw materials for steel continued to rise sharply. After entering the fourth quarter, steel prices fell sharply, driving down iron ore prices. However, the decline in iron ore prices was significantly smaller than the decline in steel prices. What is even more worrying is that as long as steel prices rebound, iron ore prices will soon rise, and the increase will be even greater.

The three major mines are still in a resource monopoly position, and the domestic demand for crude steel production is also relatively strong, so the possibility of a significant drop in iron ore prices is unlikely. In addition, coal prices have been at a high level, with coking coal prices rising by 0.6% year-on-year from January to April, and injection coal prices rising by 4.37% year-on-year. According to the monitoring of the Iron and Steel Association, the import price of iron ore by CIO PI has risen from the lowest of $128.4 per ton last year to $152.9 per ton in mid May this year, a cumulative increase of $24.5 per ton.

The reporter learned from the steel mill that due to the continuous weakness of the market, both steel companies and users are in a tight state of funds, and there are significant difficulties in recovering sales proceeds, especially the low proportion of cash in the proceeds. Steel companies generally face a state of financial tightness. On the other hand, a considerable number of steel companies have reached a point where they cannot afford bank funds. The vice president of a steel plant in Hebei province told a reporter from Economic Reference Daily that the one-year benchmark bank interest rate has risen to 6.56%, while the average profit margin of the steel industry was only 2.42% last year and 0.17% from January to May this year. According to statistics from the Steel Association, the financial expenses of large and medium-sized steel enterprises increased by 37.07% year-on-year from January to May, with a total payment of 33.6 billion yuan.

Moreover, the steel industry still faces prominent problems of overcapacity and low industrial concentration. According to preliminary statistics from the China Iron and Steel Association, there are currently 500 enterprises in China with steelmaking production capacity, over 700 enterprises with ironmaking production capacity, and 3000 to 4000 steel rolling enterprises. The crude steel production capacity has reached 900 million tons, while the output of local small and medium-sized enterprises is still growing significantly. According to statistics from the Iron and Steel Association, the crude steel production of its member companies decreased by 0.6% from January to May, but the crude steel production of non member companies increased significantly by 18.5%. The production pressure brought about by disorderly competition is significant.

The situation of high costs and low efficiency in the industry is difficult to reverse in the short term, "said Xu Xiangchun, the consulting director of my Steel Network, in an interview with the Economic Reference Daily. Due to weak demand and a significant decrease in steel prices, some companies have taken measures such as maintenance and production reduction, which has eased the speed of steel production capacity release. However, the daily production level is still high, and the competition brought by high output also makes it difficult to significantly increase steel prices. It is expected that the steel market will still be in a situation of oversupply in the later stage, and prices will continue to fluctuate at a low level.