Steel in­dus­try heads for long, cold win­ter

China Daily (Canada) - - XINJIANG - By XINHUA in Urumqi

Win­ter this year in North­west China’s Xin­jiang Uygur au­ton­o­mous re­gion is set to be one of the worst on record, and the same could be said for the Chi­nese steel in­dus­try’s prospects.

Over­sup­ply in the steel sec­tor has caused years of plung­ing prices and fac­tory shut­downs amid a slug­gish econ­omy.

Last year, Yili Iron and Steel, in Xin­jiang, regis­tered a loss of 600 mil­lion yuan ($87 mil­lion). Many other ma­jor Chi­nese steel man­u­fac­tur­ers faced sim­i­lar dif­fi­cul­ties. Wuhan Iron and Steel, China’s first spe­cial­ist steel-maker, posted a net loss of 7.5 bil­lion yuan for its listed sub­sidiary in 2015.

De­spite a re­cent re­bound in steel prices and mar­ket de­mand, over­sup­ply still hin­ders the in­dus­try.

Yili Iron and Steel switched off a 530 cu­bic me­ter boiler re­cently, mark­ing a be­gin­ning of its ef­forts to re­duce out­put ev­ery win­ter.

“Win­ter in Xin­jiang is long and cold, lead­ing to a sharp shrink in mar­ket de­mand from the con­struc­tion sec­tor. So ca­pac­ity cut­ting be­comes rou­tine for lo­cal steel- mak­ers,” said Yuan Zhizhong, deputy chief en­gi­neer of the group, adding that this ca­pac­i­ty­cut­ting pe­riod can last up to four months.

Across China, steel-mak­ers are en­cour­aged or forced to shut down or re­duce out­put to shed un­nec­es­sary pro­duc­tion.

China has shut down sev­eral steel plants with a to­tal ca­pac­ity of more than 90 mil­lion met­ric tons over the past five years.

It plans to fur­ther re­duce crude steel out­put by 100 mil­lion to 150 mil­lion tons by 2020, ac­cord­ing to the min­istry’s 2016-2020 plan.

But the men on the fac­tory floor at Yili Iron and Steel are much more op­ti­mistic.

“Do you know at what tem­per­a­ture molten iron turns into steel? 1,600 C,” said Bah­nur, a steel­worker at Yili, while work­ing at a con­veyor belt.

Since join­ing the com­pany in 1994, Bah­nur has wit­nessed first hand the in­dus­try’s many ups and downs.

“To­day things are much bet­ter than 18 years ago,” he said.

Hav­ing been in the red for five years, the then-Sta­te­owned steel-maker be­gan a new era of op­er­a­tions in 1998, when it be­came a mixed own­er­ship com­pany us­ing an em­ployee stock own­er­ship plan.

“Back then, no­body could see the road ahead,” Bah­nur said.

Even while ca­pac­ity cut­ting for a third of the year, Yili Iron and Steel still op­er­ates at 86 per­cent of its full pro­duc­tion ca­pac­ity much higher than the national av­er­age of 67 per­cent.

The com­pany dis­man­tled lots of old equip­ment five years ago, and was the first to com­plete tar­gets for out­dated pro­duc­tion ca­pac­ity in Xin­jiang, as per the 12th Five-Year Plan (2010-1015).

Win­ter in Xin­jiang is long and cold, lead­ing to a sharp shrink in mar­ket de­mand.”

It also de­cided not to con­tinue with the sec­ond phase of a new pro­duc­tion line, which had been ap­proved by the gov­ern­ment.

“Mar­ket de­mand for steel in Xin­jiang was no more than 10 mil­lion tons last year, but to­tal ca­pac­ity ex­ceeded 20 mil­lion,” Yuan said. “The con­se­quences would be dis­as­trous if we con­tin­ued.”

As the gov­ern­ment con­tin­ues to push mod­ern­iza­tion and green in­dus­try, tra­di­tional steel- mak­ers must speed up trans­for­ma­tion and tar­get a nar­rower mar­ket.

Xing­tai Iron and Steel, China’s first wire rod pro­ducer, suc­cess­fully raised its mar­ket share by fo­cus­ing on high-end prod­ucts such as cold head­ing steel and steel tire cord.

“We aim for high- tech prod­ucts. In this way, even a small rise in mar­ket share brings big re­wards, be­cause these prod­ucts have higher added value,” said Yuan Xix­ian, chair­man of Xing­tai Iron and Steel in North China’s He­bei prov­ince.

Hu Hui, pres­i­dent of Yili Iron and Steel, said: “With greater ef­forts in as­se­tre­struc­tur­ing and cut­ting­ca­pac­ity, we ex­pect the steel mar­ket in Xin­jiang to hit a turn­ing point in the sec­ond half of next year.”

Yili is still sit­ting on losses from the first nine months, but they are ac­cu­mu­lat­ing at a much slower pace. The group ex­pects to achieve a 60-per­cent re­duc­tion in losses this year.

“We have gone through our tough­est times yet, but we have seen the sil­ver lin­ing of re­cov­ery,” Hu said.


A worker checks gauges at a steel-rolling fac­tory of Yili Iron and Steel in the Xin­jiang Uygur au­ton­o­mous re­gion.

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