A number of private steel enterprises in China are under pressure

There are a number of private steel enterprises have shut down in the City of Tangshan, for example Songjeong Steel Company. Till today, there is nearly 15 million tons of steel production capacity has out of the market. Under the background of low price for steel products and also raw materials, the dilemma of Tangshan steel industry could be a microcosm of the entire industry in China. Under this market situation, the fate of the private steel enterprises are under greater pressure. Decrease productivity passively and internal re-organization has became the steel industry strategy taken by the enterprises. 

Reporters learnt that Tangshan Songjeong announced the shutdown of steel mills on the Nov 14th. This is the second steel mills which has the capacity over 500 tons per year announced the shutdown. Due to high debt and capital chain pressure, the Songjeong has to discontinue its operation. With the shutdown news spread, steel industry re-organization and integration is also gradually starting. In 2015 September, the bankrupt Haixin Iron and Steel now is taking over by Jianlong Group. Now the re-organized company is in full implementation of the restructuring plan. " In the current severe overcapacity situation, re-start the production line basically is a operating loss, we may give more consideration to hold up the cash flow first" Senior researcher Shangzheng Bao told reporters. Once stopped production lines, the pressure for re-star the production line is greater. Although keep the production line will create more losses, many steel enterprises is still struggling to maintain the cash flow of bank credit. " if now dis-continued, and so next year might never open it up, we are now still holding on" Liu told reporters. 

Although there are some small steel factories began to cut production quantity in Beijing & Tianjin area, but the actual impact of the industry on the overall production capacity is not obvious. Analyst Liu Yuehua told reporters that the daily production quantity can probably be reached from 520000 tons /day to 48 tons /day in the current area of Tangshan area. This is equivalent to an annual capacity reduction of 12 million tons. Compared to the original 156 million tons annual capacity, this reduction quantity is not obvious enough to influence the whole steel industry. Control capacity in the steel industry priority. " China has about 300 million tons of excess capacity, we need to cut and completely clearing the excess capacity as soon as possible." David Humphreys said, who worked in Rio Tinto as a economist before. As the same time, the government intent to adjust the energy production structure in the next five year. Therefore, there is no need to count on the policy level of aid interventions which means the small and medium sized private enterprises will suffer more than  state-owned enterprises. We believe the result of market choices will promote the industry's capacity clearing and final upgrade.

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Chinese Domestic Steel Market Will Continue to Decline in November.

The domestic market in October
The overall domestic steel market in China has declined weakly in October, so does the market price. The market demand has stagnant during the Chinese National Holiday in October, however, the production capacity has maintained in normal. After the Chinese National Holiday, the market needs and supply still maintained in a unbalanced level.

The domestic market in November
In November, the north of China will gradually into the construction season, the market demand will be more sluggish. Most of steel products will be provided in the Southern Chinese Market. In November, Platts Index has probed to $ 45 -50 again. Continued weakness in the manufacturing PMI and PPI continued to decline. The economy is facing structural deflationary pressures, despite the recent approval of the steady growth of centralized projects, but in the case of project funds are not in place does not show the actual results. Therefore, in November, the steel market will continue to decline in China.

The reason that influence the steel market downturn.
1. The macroeconomic downturn, the market demand into the off-season.
2. Loose monetary policy continues lead to difficult industrial financing.
3. Steel supply over demand, it is very difficult for manufacturers to cut the production capacity immediately.
4. The manufacturers gained pressured from the in stock steel products.
5. Steel industrial trade deficit has increased. The manufacturers has a strong willingness to increase the market price.

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Trade protectionism will become a constraining for Chinese steel exports.

According to the latest report announced by the Chinese Ministry of Commerce, the US Department of Commerce has initiated anti-dumping and countervailing investigation for the Chinese galvanized steel products. This announcement has actually put China at a disadvantage trading situation, and this will directly affect the Chinese steel enterprises " going out".

Since 2013, there were over 50 cases of Chinese steel products investigation. The products including galvanized steel sheet, cold rolled coil, stainless steel plate, plate bar, seamless steel tube, and various other steel products. The regions including the EU, Southeast Asia, South Asia, South America and North America. Only in 2015, the total steel exports have been involved in the investigation has over 6.5 million tons of steel products and over $ 4 billion.

This phenomenon was influenced by political, economical and other macro-situation, the insiders said. Customs statistics show that in September 2015, Chinese steel exports has achieved 11,263,000 tons, create a increase rate of 32.1% and a growth rate of 15.5%. It is the highest single-month record historically. " This is a typical example of local trade protectionism, before ruling, China has in a disadvantages position. As the export growth trend in China, this case will be even more difficult to avoid. The global economic recovery is slow, and Chinese steel exports surge, which is bound to make other countries to strengthen trade protection. " Shanghai Steel Union analyst said.

Under the new economic normality weak domestic demand, steel products " going out" has gradually been a consensus among steel enterprises. However, the trade protectionism will become a constraining for Chinese steel products exports.

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Steel Manufacturers both in UK and China decided to lay off steel workers to survive in the downturn

25 year old steel worker, Matt Cooke who worked for Britain's biggest steel maker Tata Steel worried about his job and the prospects of the steel industry. Tata Steel plans to lay off 900 employees from Scunthorpe because the Chinese steel imports is cheaper than local products. As the same time, the high cost of electricity has increased the price of steel products manufactured locally. In order to ensure the survival, Tata Steel must lay off employees in the company. At the same time, Chinese steel industry is currently facing a huge overcapacity, the decline of the local demand has affected the survival of the entire industry. Tangshan as the industrial city near Beijing, 35 year old steelworker, Jiangjun Suo is also concerned about the future of the steel industry.
China and Britain are both facing the dilemma of global steel prices plummeted, while one of the most important reason behind this is Chinese economic growth has slowdown. Although many British steel workers blamed that China has pushed British Steel Industry into a impasse, but in fact, Chinese Steel Industry is also struggling. Since the slowdown of Chinese economy and the decline demand for steel products domestically, it causes a lot of excess capacity. The cities like Tangshan are facing many pressure, and may local manufacturers focusing more on the international market rather than domestic market. Tangshan is a city have 700 million people and is one of the most important steel industry city in China. After the devastating in 1976's earthquake, Tangshan has quickly rebuilt as the industrial center in north of China. The city's steel production quantity has reached 90 million tons which has overpass the United States. However, the decline of steel prices has led many small and private factories bankruptcy. The situation in this year is more like a economy " earthquake" for Tangshan. " The current situation is not good" Jiangjun Suo Said, he worked in Tangshan Youfa Steel Pipe Company. " Although the company is still producing, but the profits declined. Many small factories nearby had closed down in this year. I am worried about losing my jobs. China still needs steel products, hope I can find work in other factories."

Tangshan located in a province which reserves enough iron ore. Due to the earthquake in 1976, many local infrastructure were damaged which create a developing chance for private steel companies. Since 2008, with the rapid development of Chinese economy, Chinese steel consumption is growing. Many small steel factories had the chance to get fund and expand quickly. Today, steel prices plummeted was an negative impact on this city's growing. For example, Tangshan Iron and Steel Company as a subsidiary of Hebei Iron and Steel Group, is planned to shut down their 2000 squire meters' blast furnance outage in this month and sealed a production facility which has the production capacity of 6000 tons per day. Another Jianbang Steel Company has shut down their blast furnance outage due to the lost of the company. Many private factories have closed, the trade and logistics centers has been empty for a long time. They are the victims of 2008 Chinese 4 trillion RMB fiscal stimulus which led to unsustainable construction wave during that time. " Nobody can make money in steel industry in China. Not only in United Kingdom facing this situation, so does China." A 32 year old steel trader, Guangshui Ting said. " Every ton of steel produced by the factories, will causes a lose of 100 RMB (15.78 US Dollars) for the manufacturers. For the manufacturer of wire and metal products, the price of steel billets fell to a historic low price. (1600 RMB per ton = 252.54 US Dollars per ton). The price for steel billets is even lower than the price of one ton of cabbage in China today. China has the ability to produce 1.2 billion tons of steel products per year, the quantity covers about three quarters of the total global demand. The decline in domestic demand means that China have to make up for the lack of domestic demand through exports. Last year, only in Hebei Province the export quantity for steel products has reached 2720 tons. This quantity covers around 29% of the country's total steel.

According to the International Iron and Steel Statistics Bureau Data, the UK is one of the Chinese steel export market last year. The number of British imports from China has reached 752000 tons. Although this quantity is only a small part of the UK's total steel imports, the lower importing cost has reduced the market price in UK which create a negative impact on UK steel industry downturn. However, workers in UK steel industry has also admitted that there are many other reasons causing the decline of British steel industry. " This is not China's fault, in the Europe Market, UK can not compete with other Europe Countries anyway. 35 year old steel worker, John Laurens said who worked in Scunthorpe Steel Industry. British steel industry is committed to reducing the high cost of energy, but the world's highest environment protect tax make this issue more complicated. The British government said that what they can do is very limited, no government can change the price of steel, or changing foreign exchange rates, or even ignore the international norms or free trade state aid rules.

In China, the entire steel industry is dominated by large state owned steel companies. While in the UK, there are additional government funds to help diversify the iron and steel development and retraining the steelworkers. Tangshan Iron and Steel's annual production quantity is over 40 million tons at present, the government indicated that it will be decreased before the year of 2017, and the city is seeking economic restructuring, and will be positioned as one of the advanced robotic research and development centers in China in the future. While in the UK, the government and Tata Steel has committed to allocate 9 million pounds ($ 13.9 million) to attract new businesses into the steel industry and employment retraining.

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