Steel industry heads for long, cold winter
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 capacity cutting 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The company dismantled lots of old equipment five years ago, and was the first to complete targets for outdated production capacity in Xinjiang, as per the 12th Five-Year Plan (2010-1015).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.” Yuan Zhizhong, engineer
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 asset restructuring and cutting capacity, 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.