Top Chinese steelmakers lose market share amid clampdown
The share of the mainland's top producers is being eroded by private mills even as the government orders outdated capacity to be closed
The mainland's fragmented steel industry has seen the market share of its top players fall for two consecutive years as private mills continued to grow, bucking Beijing's repeated calls for local governments to clamp down on expansion in a sector struggling to turn a profit because of overcapacity.
Xu Lejiang, the chairman of Shanghai-based Baosteel Group and China Iron & Steel Association, told an association meeting the market share of the industry's top 10 steel mills had fallen to 39.1 per cent in the first 11 months of last year from 42.8 per cent in 2011. The industry had posted gains from 2005 to 2011.
"Falling concentration not only weakens steel mills' bargaining power against raw materials suppliers, it also makes it more difficult to pass on higher costs to downstream customers," Xu said in comments published on the industry body's website.
Beijing told local government and steel sector leaders in November last year that they must phase out outdated capacity, with 80 million tonnes to be closed by 2017. Half of the target is supposed to be achieved this year.
About 60 million tonnes will be cut from mills in Hebei province, the nation's biggest steel producer and a major contributor to air pollution in Beijing.
The association estimated last year's industry output at 775 million tonnes, or 79.4 per cent of capacity of 976 million tonnes.
Output in the first 11 months of last year grew 7.8 per cent to 712 million tonnes, up 2.1 percentage points from the year-earlier period, Xu said.
Although the association's members posted a combined profit of 16.2 billion yuan (HK$20.7 billion) in the 11 months, compared to a loss of 756 million yuan previously, the profit margin of 0.48 per cent was the lowest among all manufacturing sectors, he said. About 28 per cent of its members recorded losses.
Analysts differ on the sector's outlook.
"Environmental concerns will limit supply growth but won't trigger a structural recovery in [profit] margins as the key issue of a lack of bargaining power versus both raw material suppliers [of iron ore and coking coal] remains," analysts at American brokerage Jefferies said in a research note.
Daiwa Securities' analysts are more upbeat, saying: "We expect major steel mills' pricing power to gradually improve given stricter air pollution policies [which] should result in steel supply being constrained in the medium term to create more balanced demand-supply dynamics."
