Almost half of China’s large- and mid-sized steel mills reported losses during the first nine months of 2012, the China Iron and Steel Association said on Wednesday.
Combined losses amounted to 26.73 billion yuan (4.24 billion U.S. dollars), marking a 41.5-fold increase in losses year on year. Last year’s losses were 644 million yuan.
The steel companies’ sales fell 6.49 percent from one year earlier during the first three quarters, due to a slowing economy and oversupply, said Wang Xiaoqi, vice president of the association.
China’s consumption of steel rose 0.65 percent to 510.28 million tonnes during the first nine months, slower than the 10.38-percent increase seen in the same period last year, data showed.
Demand has softened in the world’s largest steel-producing nation since the start of the year, as the country scaled back investment in rail construction and property development amid a slowing domestic economy.
“The steel industry is facing continued challenges because of weak steel prices and a rebound in iron ore costs,” Wang said.
Higher operational costs were also squeezing steelmakers’ margins. In the Jan.-Sept. period, major steel mills’ financial costs surged 29.18 percent year on year, and their debt to asset ratio rose to 68.49 percent at the end of September, according to the association.
In the face of widening losses, steelmakers recognized the importance of battling with overcapacity, a problem that has beset the industry for years.
Steel output growth slowed and inventories dropped as the government restructured the industry and some steelmakers cut production.
Steel output rose 5.7 percent year on year during the first nine months, down from the 13.9-percent increase registered during the same period last year.
Inventories of five main steel products including hot-rolled coil and rebar in 26 major markets fell 2.8 percent from the end of October to 12.08 million tonnes on Nov. 9.
The association asked steelmakers to control costs, especially procurement costs, and improve their product mix.
Wang predicted demand recovery in the fourth quarter with the implementation of pro-growth measures rolled out by the government. These included more aggressive fiscal spending, structural tax reduction, monetary loosening and state-run sectors opening to private capital.
“Steel prices rose slightly in late September, showing signs of a recovery in the steel market. Demand may improve in the fourth quarter,” he said.