China's iron and steel industry will usher in the era of 'big steel enterprises'

On September 21, "Seminar on Steel Market Prospects and Risk Control in 2020" was held in Nanjing. The seminar was co-sponsored by Dachang, Nanjing Iron and Steel and Shanghai Jiaotong University College of Advanced Finance. Nearly 50 participants from representatives of iron and steel enterprises and relevant financial service institutions participated in the seminar.

The director of Member Service Department of Dashang Institute said that after visiting the production line of Nangang, the feeling was very different. Although the steel industry belongs to the traditional industry, it has done a lot of work in management innovation, product innovation and scientific and technological innovation, and has a strong sense of innovation. The futures market not only needs to serve the real enterprises well, but also should learn the spirit of innovation from the entities, constantly improve the service and content, list more varieties, and provide more financial derivatives tools for the real enterprises. He said that both the recent brand delivery of iron ore by big business firms and the investigation of scrap steel, as well as the cooperation with some other financial institutions, including off-site companies, hope to provide real enterprises with more and easier to understand and use derivatives tools, so that real enterprises focus on technology and production, and other risk management. Personalized needs such as rationalization are provided and met by financial institutions. For the development of the steel industry in 2019, Zhang Qiusheng, Minister of Nanjing Iron and Steel Market, believes that the steel market presents a pattern of high supply, high demand, high risk, high fluctuation, fast rhythm and wide oscillation throughout the year. It is expected that the trend of steel price will be "M" in the whole year of 2019. The high point of steel price in the first half of the year will appear in April. The steel price is expected to rebound in September and October, but the increase is limited. The steel price will spiral down in the fourth quarter, depending on the macro-prospective repair.

"The center of gravity of steel price has been lowered throughout the year, the price of raw materials has been firm, the scissors gap has been widened, and the profit of steel mills has shrunk sharply. From January to July, the total profit of the iron and steel industry was 123.58 billion yuan, down 23.9% year-on-year, and is expected to drop by about 30% year-on-year. Zhang Qiusheng said.

Analyses the iron and steel industry policy in 2019. Cai Yongzheng, director of Nanjing Iron and Steel Securities Department, believes that the implementation of the industry policy in the first half of the year is not as expected. He said that the goal of the iron and steel industry is to continue to deepen the structural reform of the supply side; strictly prevent new capacity and the resurgence of "floor steel"; steel enterprises should restrain the impulse to expand production and actively maintain the balance between supply and demand in the market. But the reality is that the focus of reform has shifted to merger, reorganization and deleveraging; the capacity of non-member iron and steel enterprises has increased rapidly; the local government has led a new round of expansion, and it is difficult to maintain the balance between supply and demand in the market.

Cai Yongzheng believes that China's steel industry will usher in the era of "big steel enterprises". According to the target set by the Ministry of Industry and Information Technology, by 2025, 60%-70% of the output of China's iron and steel industry will be concentrated in about 10 large groups. In the future, the number of enterprises of scale from 5 million to 15 million tons will be significantly reduced, replaced by 3-4 iron and steel groups of 80 million tons and 6-8 iron and steel groups of 40 million tons. Billion tons of iron and steel enterprises will be an inevitable event.

For how to manage the risk well in the black industry chain in 2020, Cai Yongzheng said that the first is facing the downward risk of real estate investment brought about by the adjustment of real estate market policy. Steel mills and steel traders have high inventories, so they can hedge steel futures with appropriate basis difference; for main contracts of threaded steel and hot coil futures, they can sell hedging according to the basis difference. Secondly, facing the risk of rising coke price brought by the reform of supply side in coking industry, the industrial chain can buy futures and options to hedge the main coke contracts according to the base difference situation; steel mills can purchase on demand and choose the opportunity to buy and hedge the main coke contracts.

Third, facing the risk of oversupply and extrusion of steel mill profits. Industry chain enterprises can reduce spot inventory, advance sale of their own steel production, reduce the purchasing intensity of spot raw fuel, purchase futures virtual inventory of raw fuel, and select forward-month futures contracts for profit-locking operation of virtual steel mills.