Producers steel themselves for drop in consumption

China used less crude steel in the first quarter of 2012 than in the same period a year ago, the first such decrease recorded in three years.

Senior officials reacted to that news on Wednesday by saying the decline adds more uncertainty to the market.

According to the China Iron and Steel Association, 165.03 million tons of steel were consumed in China in the first three months of the year, or 1.85 million tons a day on average. That amount was 0.16 percent smaller than in the same period last year.

"The present situation needs attention from steel makers," said Zhang Changfu, vice-chairman of the association. "The daily output of crude steel has been increasing since the beginning of the year. If it continues to rise, it will put a lot of pressure on the domestic market, particularly whenever any changes happen in the international market."

The country produced 174.22 million tons of crude steel in the first quarter of the year, up 2.5 percent year-on-year. In the same period of 2011, the growth rate of increase had been 8.7 percent, according to statistics the association released on Wednesday.

Meanwhile, steel makers' losses are spreading from their chief businesses to their entire industry, making it difficult for their subsidiary businesses to make up the losses incurred in steel production.

Zhang said this is the first time since the start of the decade that the industry has been hit so hard. "But things have been getting better in March and we are working harder to turn a profit in the first half the year," he said.

"These are the most difficult times I've seen since I entered the steel industry 30 years ago," said Yang Shilin, deputy Party secretary of Shagang Group Co, the largest privately owned steel maker in China. "Being in the steel business this year is even harder than it was during the financial crisis in 2008."

Even worse, the difficult conditions are likely to continue far into the future, he said.

"The 'big' times for China's steel industry, with their huge profits, have gone forever," he said.

Shagang Group is based in Zhangjiagang, Jiangsu province.

Altogether, Chinese steel companies reported a loss of 7.37 billion yuan ($1.17 billion) for the first two months of 2012. That amount was 23.4 times greater than the loss they had reported for the same period last year, according to the association.

Hunan Valin Steel Co, one of the top 10 steel makers in the country, estimated on Saturday that it lost from 690 million yuan to 730 million yuan in the first quarter of 2012, up nearly 200 million yuan year-on-year.

For the same period, Angang Steel Co estimated that it lost 1.8 billion yuan, while Shougang Group reported a loss of 140 million yuan to 160 million yuan.

The losses were a result mainly of a fall in the domestic demand for the companies' products, as well as a rise in the cost of raw materials, coal and power.

Zhang said government restrictions on the real estate industry have affected steel consumption. Spending on infrastructure construction has meanwhile decreased by 2.1 percent year-on-year, the first such drop in recent years.

He said other big steel consumers, including the automotive, ship and equipment manufacturing industries, are either increasing their spending at slower rates than previous years or have stopped increasing it altogether.

Starting on February 1, the government increased a resources tax imposed on iron ore mines, taking it from 9 yuan for each ton of ore mined to 12 yuan for each ton.

The association estimates the change will increase the industry's costs by 4 billion yuan. Zhang also said many steel products remained in storage in March, a fact that could also depress steel prices.

By the end of the month, 17.89 million tons of steel were in storage in 26 main steel markets, 4.99 million tons more than at the beginning of the year.

dujuan@chinadaily.com.cn