The supply and demand imbalance in the steel industry exceeded 80% in the first half of the year, and the net profit of steel companies declined

As of August 30th, the 2022 semi annual reports of 52 listed companies in the steel industry have been disclosed. Under the dual pressure of the prevention and control of the COVID-19 and the severe situation of the steel market, the steel industry entered a weak cycle, showing a trend of high costs, weak demand, and declining profits. The operating efficiency of domestic steel enterprises generally declined significantly year-on-year. According to data from Dongfang Wealth Choice, among the 52 listed companies mentioned above, nearly 50% of their operating revenue decreased year-on-year, while over 80% of their net profit attributable to the parent company decreased year-on-year.

In the first half of the year, most steel companies overcame multiple pressures and challenges and made positive contributions to the overall stability of the upstream and downstream industrial chains. In the second half of the year, with the improvement of the epidemic, the supply of raw materials such as iron ore, coal coke, and scrap steel will gradually improve marginally. The cost pressure on steel enterprises will gradually ease, and the profit center of steel enterprises is still expected to rebound.

Most steel companies have poor performance

According to data from the National Bureau of Statistics, in the first half of 2022, the black metal smelting and rolling processing industry achieved a revenue of 4575.97 billion yuan, a year-on-year decrease of 3.6%; The operating cost was 4332.65 billion yuan, a year-on-year increase of 0.7%; The total profit achieved was 82.61 billion yuan, a year-on-year decrease of 68.7%. In terms of products, in the first half of 2022, the national production of pig iron and crude steel reached 43.8927 million tons and 52.6877 million tons, respectively, a year-on-year decrease of 4.7% and 6.5%. In the first half of 2022, China exported a total of 33.46 million tons of steel, a year-on-year decrease of 10.5%; Accumulated imports of 5.77 million tons of steel, a year-on-year decrease of 21.5%.

In the first half of this year, the 52 companies mentioned above achieved a total revenue of 1.23 trillion yuan, a decrease of 0.19% compared to the same period last year; The net profit attributable to the parent company was 39.623 billion yuan, a decrease of 51.46% compared to 81.623 billion yuan last year. Seven companies, including Liugang Co., Ltd., Anyang Iron and Steel Co., Ltd., Xining Special Steel Co., Ltd., and Bayi Iron and Steel Co., Ltd., have net profit losses attributable to their parent company. Among them, the net profit attributable to the parent company of Xining Special Steel decreased by 329.59% year-on-year; The net profit attributable to the parent company of Anyang Steel, Liugang Group, Daye Group, Bayi Steel, and Jiugang Hongxing decreased by over 100% year-on-year.

As a leader in the steel industry, Baosteel achieved a revenue of 183.655 billion yuan in the first half of the year, a slight increase of 0.2% year-on-year; Realized a net profit attributable to the parent company of 7.791 billion yuan, a year-on-year decrease of 48.4%. "Affected by the COVID-19, the demand of downstream steel industries, such as automobiles and engineering machinery, generally declined in the first half of the year. Steel prices declined from the second quarter. The prices of upstream raw and auxiliary materials, such as coal and alloy, remained high. The price gap between the purchase and sale of steel enterprises narrowed, and the industry's operating efficiency declined significantly." Baosteel said.

The poor performance of domestic steel companies in the first half of the year is mainly due to the significant decrease in finished steel profits caused by the imbalance between supply and demand. "Wang Xuanyue, a researcher at Shanghai Steel Union Steel Business Group, said in an interview with Securities Daily that overall steel demand has decreased significantly this year. Although domestic steel production has also decreased during the same period, the rate of supply reduction is not as fast as the rate of demand contraction, and the profit per ton of steel is gradually declining under the oversupply pattern.

In the case of a decrease in steel prices, the profit margin obtained by steel companies is greatly reduced, which directly affects the performance of steel companies