China’s economy has hit a rough patch, leading to a downturn in the performance of industrial enterprises. Official data released by the Chinese government for the first 8 months of this year shows a significant decline in profits across multiple industries. The steel sector, in particular, recorded a total loss of 16.97 billion yuan, with profits dropping by a staggering 215.9% year-on-year.
This downturn is reflected in the data released by the National Bureau of Statistics of China on the 27th, which indicates that the total losses in the ferrous metal smelting and rolling processing industry reached 16.97 billion yuan, with profits plunging by 215.9% year-on-year. This industry includes iron and steel smelting, steel rolling processing, and ferroalloy smelting.
Since the Chinese New Year, steel prices in China have been rapidly declining. According to Caixin Financial Network, from January to April, the losses in the ferrous metal smelting and rolling processing industry amounted to 22.22 billion yuan, marking the highest loss point of the year. The industry experienced losses of 3.1 billion yuan from January to June, and with steel prices dropping further in July and August, the losses accumulated to 27.6 billion yuan from January to July, expanding further in August.
The China Iron and Steel Industry Association reported that the China Steel Price Index (CSPI) had decreased by 20.19% compared to the end of the previous year. Prices of all eight major steel products, from long steel to seamless pipes, have been on a downward trend.
As reported by the China Metallurgical News on September 25th, the CSPI index declined by 6.76% in the first 8 months of the year. However, the prices of major raw materials like iron ore have been rising. The increase in raw material costs coupled with declining steel prices has resulted in further profit declines for steel enterprises. The average price of imported iron ore increased by 1.3% year-on-year in the first 8 months.
The main reason for the losses in the steel industry is the significant decline in domestic market demand. From January to August, China’s crude steel apparent consumption decreased by 5.5% year-on-year. In an effort to minimize losses, some steel companies have reduced production and shut down certain blast furnaces. The crude steel production for the first 8 months decreased by 3.3% to 690 million tons.
Another crucial industry, the coal industry in China, also saw profits decline by 20% year-on-year for the first 8 months of this year.
According to data released by the National Bureau of Statistics of China on September 27th, the total revenue of the coal industry in China amounted to 2.07 trillion yuan, a decrease of 10.6% year-on-year, with total profits amounting to 416.72 billion yuan, a 20.9% decrease compared to the previous year.
Overall, coal prices in China have been gradually declining. As of August 30th, the spot price of power coal in Qinhuangdao was reported at 863 yuan per ton, a 7.4% decrease from the beginning of the year.
The main cause of this phenomenon, as analyzed by Caixin Financial Network on September 27th, is the imbalance between coal consumption demand within the Chinese market and the oversupply of coal. This imbalance has led to a decrease in coal prices and subsequently, a decline in coal enterprise profits. In the first 8 months of the year, coal imports increased by 11.8% to 340 million tons, and with cheaper imported coal, the price difference has led to an increase in coal imports.
Due to reduced demand and increased supply, some major coal enterprises in China have experienced a situation of “increased quantity, decreased price.” Among them, the largest listed coal enterprise, China Shenhua, saw a 5.4% year-on-year increase in coal sales volume in the first half of the year, but the average coal sales price decreased by 5.8%, resulting in a more than 10% drop in the company’s net profit.
In China, the major consumers of coal are power plants, with coal for electricity generation accounting for 53% of total coal demand in China. This is followed by the steel industry, where coking coal for smelting processes accounts for 17% of the total demand, and coal demand from the construction sector makes up 7%.
Financial Network reports that while the coal demand for power generation is expected to increase this year, coal usage in the steel and real estate industries is projected to continue declining. Both steel and real estate industries are already entering a downturn cycle.
The significant decline in profits across various industrial sectors serves as a microcosm of the current economic challenges facing China’s manufacturing industry. The National Bureau of Statistics of China indicated on the 27th of August that in August alone, profits of large-scale industrial enterprises declined by 17.8% year-on-year, a significant drop from the 4.1% growth seen previously, marking the lowest point since May 2023.
Economist David Qu from Bloomberg commented on the situation, stating, “The deterioration in the industrial sector, weak growth data, and signs of monetary tightening risks may prompt top-level decisions to increase stimulus measures.”
Public data shows that China’s large-scale industrial enterprises refer to industrial enterprises with annual main business income exceeding 20 million yuan.