Domestic supply-demand relationship is improving
At present, the problem of over-capacity of production is confronting the steel industry. But taking the investment in the fixed assets of every section into consideration, the supply-demand relationship of the steel industry is improving.
In the first three quarters of 2007, the country has totally invested 782,467,800,000 Yuan in the fixed assets, up 26.4% over the same period of last year. It is estimated that a 26% increase will continue in the fourth quarter and a 20% increase in 2008. Specifically, the investment is largely invested in the manufacturing industry, real estate and transportation. All these industries consume a lot of steel, which guarantee a steady demand of steel in future.
At the same time, the investment in steel industry is declining. Our country has invested 228,149,000,000 Yuan in steel sector in 2005, reaching an all-time high. Based on the 2-3 year's operation cycle and the strengthening elimination of production capacity that has become obsolete, we think that in 2007 or 2008 the output of steel can reaches the peak and then the supply of domestic steel will change greatly, some varieties will drop behind demand.
Global demand is still strong
The world economy has maintained a sound rapid growth this year. According to the latest forecast of IMF in July, the world economy will increase by 5.2% in the next 2 years. The rapid economy growth has guaranteed the continued expansion of manufacturing and infrastructure construction, which will stimulate the demand for steel. It is estimated there will continue a great demand for steel in the coming years.
In contrast, the daily-average output of crude steel in the world declines. Obviously the production can't meet the increased demand. It may take two to three years to form productive capacity from steel investment. According to such estimate, it is not possible for the oversea steel industry to form a new round of steel productivity in short period.
So under such circumstance, the increased international demand must greatly depend on the export of our country, they need imports from our country.
" A new miracle" is expected in China
The experience of Japan has shown that the steel industry of a country can grow bigger and stronger by upgrading its industrial structure or by reorganization and restructuring of enterprises when it meets export restrictions or confronts great pressure in low productive capacity. The steel industry in our country will not be an export-oriented one in the future, but the transition and development of economy in our country have stimulated the down-stream industries' vigorous demand for steel and strong requirements for industrial upgrade, which will help the steel industry to form the self-upgrade ability and establish competitiveness in the world.
At the same time, the profit in our country is the lowest in the world. But under the condition of vigorous global demand, the gross profit of steel in our country will be closed up to global level. At moment, the gross profit is only about 10%. Under such a low rate, an increase of one percentage point of gross profit will bring an increase of steel industry profit by 10%.
In these sense, although the industry faces certain cost pressure due to the raised spot price of iron ore, coke and sea transportation charges, the future of the industry is bright. The profit will increase greatly when it completes the upgrading of industrial structure and reorganization and restructuring of enterprises. Compared with the Japanese steel industry of 1980s, we have three advantages: 1 ), we possess mine source; 2 ), industrialization has not been completed; 3) the domestic demand is strong.
Under the condition of Renminbi apprciation and the ambition to grow bigger and stronger, it is expected to see the steel miracle, which happened in Japan in 1980s, in large-scale steel enterprises of our country.
