According to a press release issued by the China Iron and Steel Association on Friday, China's steel industry, one of the worst hurt industries by the international financial crisis, still faces grim outlook. 

Overcapacity issue remains severe.  Raw steel output was 660 million tons in 2008.  With 453 million tons of actual consumption, a surplus of 207 million tons was produced.  In the first half of 2009, raw steel production was 266.6 million tons.  With output level showing an upward trend, it is predicted total yearly output will surpass 500 million tons.  Therefore the oversupply situation remains a serious issue.

Total export of 9.95 million tons of raw steel equivalent in the first half meant 65.41% drop from the same period of last year.  Meanwhile, total import was 11.3 million tons of raw steel equivalent, up 27.19% year on year.  The net import of 1.35 million tons in the first half further amplified the existing domestic overcapacity.  The tiny price differences between China's import and export in the first half showed that Chinese steel producers no longer had any price advantage.  Therefore, turning the net import situation around is not expected in the short term.

With the government's stimulus policy, steel demand in the first half increased 10.05% over the same period of last year to 268 million tons, and this trend is expected to be maintained in the second half.  However, the demand increase was mainly confined to construction related steel products.  The plate and sheet products, used by industries with high profit margin, were little affected.  With the net import, the overcapacity issue for plates and sheets got even worse.

The bright side for the steel industry was on environment protection.  In the first half, energy consumption dropped 5.25% year on year, water consumption per unit of steel output dropped 10.04%, COD dropped 26.75%, SO2 discharge dropped 9.25%, industrial smoke and dust discharge dropped 14.04% and 4.75% respectively.

Steel prices hit bottom by the end of last year.  It dropped again for three months after a surge in January.  For May and June, and trend had been upward.  In the second half, this weak upward trend is expected, with swings.

Compared with the same period of 2008, total revenue among the top 71 producers dropped 28.07% in the first half to 955 billion yuan, and net profit dived 98.32% to 1.725 billion yuan.  Net loss in the first 4 months was 5.6 billion yuan.  The tiny profit was due to the profit of 1.036 billion yuan in May and 6.296 billion yuan in June.

Iron ore import increased 29.3% in the first half to 297 million tons.  The import increase was three times of the demand increase.  Therefore the iron ore import further exaggerated the supply and demand imbalance, and distorted the domestic market.

The second half is critical for China's economy to return to stable growth. There are still many uncertainties.  The imbalance issue remains a big challenge for the steel industry to maintain stable growth.