1b tons in sight for this year, but profitability may stay flat due to COVID-19 impact

China's crude steel output is estimated to exceed 1 billion metric tons this year. That will mark an increase of 3-5 percent year-on-year. But, the industry profitability this year is likely to stay flat and may increase modestly next year, according to the China Iron and Steel Association.

Qu Xiuli, deputy head of CISA, said the industry has been able to maintain high-quality development during the first nine months of the year, despite the negative impact of the COVID-19 pandemic and uncertainties in both domestic and foreign markets.

She attributed the strong performance in the first three quarters to the government's policies that drove the rebound of the Chinese economy.

Also, the Chinese steel industry has a relatively complete industrial chain, high exposure to market forces and strong technological advantages, she said.

Her remarks followed the CISA announcement of key industry data on Monday. "The industry's risk management capacity has been largely enhanced after coping with challenges caused by the COVID-19," Qu said.

"The stable recovery of the Chinese economy, together with the huge domestic market potential and strong economic development resilience, propels market demand for steel, while government policies, including that for ensuring stability on the 'six fronts' and security in 'six areas', have created supportive external development environment for steel enterprises."

The "six fronts" and "six areas "refer to the government's priorities for the year, such as safeguarding employment, stable industrial and supply chains, and the development of market entities, among others.

CISA data showed that by the end of May, surveyed steel enterprises that are members of the association had saved 6.5 billion yuan in operational costs, thanks to the government cuts in taxes and fees, including 4.5 billion yuan from deductions in social and medical insurance premiums, and 700 million yuan from deductions in transportation-related taxes and fees.

Based on the survey, the association predicted the industry will save 17 billion yuan in costs this year.

Qu said the industry will scale up new high-quality development momentum under the nation's new economic development pattern of "dual circulation", in which domestic and overseas markets complement and reinforce each other, with the domestic market as the mainstay.

China's crude steel output from January to September hit 781.59 million tons, up 4.5 percent from a year ago.

Crude steel production in the first and second quarters increased 1.2 percent and 1.7 percent year-on-year, respectively, while in the third quarter, it spiked 10.3 percent year-on-year.

Demand is also recovering. Apparent consumption of crude steel during the January-September period was 769 million tons, increasing 8.94 percent year-on-year, up 1.7 percentage points from the January-August period.

The steel price has also been recovering slowly since April. But, the China Steel Price Index dropped 0.09 percent on a yearly basis to 105.99 points at the end of September. The CSPI was created by the CISA to monitor changes in the product prices of steel.

From January to September, sales of designated steel enterprises reached almost 3.4 trillion yuan, up 5.44 percent year-on-year.

Moreover, profitability of designated steel enterprises is also perking up. Although their profits in the first nine months declined 9.46 percent from a year ago to 137.5 billion yuan, the decline has become increasingly smaller throughout the period, as the monthly profits in June, July, August and September were all higher than that in the corresponding months last year, according to Qu.

Huang Dao, deputy secretary-general of the CISA, said the industry's ultra-low carbon emission upgrading has made better-than-expected achievements.

Steel mills with 30 percent to 40 percent of the national capacity have completed modification to meet ultra-low carbon emission standards in whole steel production process, and are currently under third-party evaluation and monitoring, Huang said.

Besides, mills accounting for about 60 percent of the national steel capacity are undergoing modifications, he said.