In the first half of this year, the steel industry faced a severe and complex market environment. Especially since the second quarter, the overall demand for steel is weak, raw materials and fuel prices are high, steel prices have fallen sharply, and the economic benefits of enterprises have declined.

How should the steel industry and enterprises deal with the current difficult situation? The 21st Century Business Herald interviewed Fan Tiejun, deputy Party secretary and president of the Metallurgical Industry Planning and Research Institute, regarding the current market fluctuation and future trend of the steel industry.

Fan Tiejun believes that the current steel market supply and demand dislocation, should strengthen the industry self-discipline, active control of production rhythm, this year's crude steel output year-on-year decline will be a large probability event. As the central stabilizing economic package policy effect further appears, downstream industry gradually recovers, Chinese steel market demand in the second half of the year will also be better than the first half of the year, supply and demand situation is expected to be improved.

President of Metallurgical Industry Planning and Research Institute

Fan Tiejun

Industry out of trouble urgently needs active production control

Q: What do you think is the reason for the current downturn in the steel industry? How should companies respond to downward pressure?

Fan Tiejun: In the first half of this year, the steel industry faced a severe and complex market environment. The steel market showed a running trend of "demand continued to weaken, inventory continued to rise, prices fell rapidly, and profits fell sharply". Especially since the second quarter, the outbreak of COVID-19 in many places in China, especially in East China, mainly in Shanghai, and North China, mainly in Beijing, has been greatly affected, resulting in significantly lower steel market demand than expected, which further aggravates the contradiction between supply and demand in the steel market.

In this case, strengthening industry self-discipline and actively controlling the production rhythm is the only way for the whole industry to quickly get out of the predicament in the short term.

From the steel supply side, in the face of market changes in the second quarter of this year, the iron and steel enterprises through stop and limit production, reasonable arrangement of maintenance and other measures, to reduce the output of iron, steel and material to different degrees. According to the National Bureau of Statistics, from January to July 2022, the country's cumulative production of crude steel was 609 million tons, a year-on-year decrease of 6.4%; In July, China's daily output of crude steel was 2,626,800 tons, down 13.15 percent from the previous month.

From the steel demand side, due to the second quarter of the steel industry chain supply chain was greatly affected, the downstream main steel industry with a number of indicators of negative growth, especially real estate, construction machinery, home appliances and other industries, steel market demand is lower than expected. Excluding inventory changes, steel consumption from January to July was 552 million tons, down 6.8% year on year.

Q: Relevant state departments have made it clear on many occasions that they will continue to reduce crude steel output this year. In July, the national crude steel production has reached the lowest level of the same period in nearly three years. According to the current situation, has China's crude steel production entered a downward cycle?

Fan Tiejun: since this year, the pace of global economic recovery is slowing, the conflict between Russia and Ukraine, the new crown pneumonia outbreak further intensify the uncertainty factors such as the international and domestic economic downward pressure, lower-than-expected demand led to the downstream industry, iron and steel enterprises through production stops to avoid percentage of loss-incurring enterprises continue to expand, and this is the main reason for the decline in crude steel production. Superimposed environmental protection limit production and national crude steel output reduction work, this year's crude steel output year-on-year decline will be a large probability event, and the second half of the production pressure will be less than the same period last year.

Next, the steel industry macro level policy will remain unchanged. Should continue to deepen structural reform is the iron and steel industry development supply side line, strictly implement the safety, environmental protection, energy consumption, quality, land use, industrial policy and displacement capacity and other requirements, it is strictly prohibited in any name or in any way new steel smelting capacity, investigate illegal activities of various kinds of steel production capacity, fight "DeTiaoGang" resurgence and dissolve excess capacity and production.

In terms of crude steel output reduction, we will continue to implement a differentiated policy of "some while others". In key areas, we will reduce crude steel production in the Beijing-Tianjin-Hebei region and its surrounding areas, the Yangtze River Delta region, the Fenhe and Weihe Plains and other key areas for air pollution prevention and control. In the key target, we will highlight the reduction of crude steel production with poor environmental performance, high energy consumption and relatively backward technological equipment level.

The second half is expected to improve the contradiction between supply and demand

Q: The peak season of "nine gold and ten silver" steel market is approaching, and the contradiction between supply and demand in the steel industry can be alleviated in the second half of the year?

Fan Tiejun: Under the national goal of stable growth, with the adjustment of COVID-19 prevention and control policies and the resumption of work and production, steel demand will be gradually released, and infrastructure development will exert a certain driving effect on steel demand. However, in the case of repeated COVID-19 outbreaks and real estate delivery risks, there are still uncertainties in the recovery of consumption in the real estate, home appliances and other major steel industries. The improvement of steel demand may not be as good as expected, and the steel price level is expected to follow the effective release of demand and rise.

As the country deployed to stabilize the economic package of policy measures to continue the gradual force, the downstream industry demand in the second half of the year to maintain the overall recovery, is expected to be better than the first half of the year.

In terms of the real estate sector, China will continue to promote the construction of low-income housing in the second half of the year, play a guiding role in the loan market quotation rate, support the commercial housing market to better meet the reasonable housing needs of buyers, and real estate investment is expected to stabilize.

In terms of infrastructure construction, the major projects in many places have entered a period of accelerating investment volume. In the second half of the year, China's infrastructure construction will still maintain a relatively rapid growth trend, and it is expected that the annual investment growth rate will reach about 10%.

From the perspective of the machinery industry, thanks to the relevant positive measures taken by the state, the resumption of work and production trend of the machinery industry is better than the recovery of the consumer market. The operation situation of May is better than that of April, and June is better than that of May. Optimistically, the industrial added value of the machinery industry is expected to grow by 5.5 percent in 2022.

In terms of the auto industry, China's auto production and sales in July grew by 31.5% and 29.7% month-on-month respectively, ending the downward trend and showing a strong rebound signal. In the second half of the year, the effect of the purchase tax halving policy will continue to show, the recovery momentum of the passenger car market will further increase, new energy vehicles will continue to maintain the momentum of high-speed growth, and it is expected that the production and sales of automobiles will maintain stable growth throughout the year.

Comprehensive judgment, the annual steel consumption is expected to show a small decline in 2022, but will remain high.

With the further appearance of the central stabilizing economic package policy effect, the downstream industry gradually recovers, our steel market demand in the second half of the year will be better than the first half of the year, environmental protection limit production, crude steel output reduction and other policies will continue to exert force, will have a certain impact on the supply side, the supply and demand situation is expected to be improved.

Q: Will the current downturn in the steel industry lead to a new round of mergers and reorganizations?

Fan Tiejun: The longer the industry goes through a difficult period, the faster the industrial pattern may change. This is determined by the law of market development. The large number of enterprises, low industrial concentration, which leads to the foreign procurement of raw materials without discourse power, and the disorderly competition of domestic steel market, which is one of the "pain points" restricting the high quality development of Chinese steel industry. This development pattern must change, otherwise it is impossible to truly achieve steel power.

Steel industry through strategic restructuring, and effective integration, can effectively solve the three problems of the development of the steel industry: one is through industry self-discipline to achieve dynamic balance between production and demand, market stability; Second, it can concentrate superior resources, break through key generic technologies, and solve the blocking points and difficulties in the development of the industry; Third, centralized procurement can obtain the right to speak in the international iron ore market procurement.

In the long run, the development direction of the steel industry pattern is bound to form a number of world-class super large steel enterprise groups, the formation of professional leading enterprises in stainless steel, special steel, seamless steel pipe and other fields, and the formation of regional dominant enterprises through the regional restructuring of steel enterprise concentration areas. Iron and steel enterprises should be fully aware of this development trend, prepare to deal with, and actively plan reorganization and integration.

"Double carbon" under the need to pay more attention to energy security

Q: Recently, the peak electricity load in summer has repeatedly set new highs, and many places have imposed orderly restrictions on the electricity consumption of high-load energy industries, such as steel. With the gradual increase of the proportion of electric furnace steelmaking in the future, how to ensure the stability of terminal energy and production in the steel industry?

Fan Tiejun: Due to history and resource endowment, China's steel process structure has always been dominated by long process. In 2020, China's electric furnace steel production accounted for only 10.4%, which is still far behind the world average level of about 30% and the proportion of nearly 70% in the United States.

Under the background of "double carbon", process structure adjustment is an important way of green low carbon development of our iron and steel industry. According to the Guidelines on high-quality development of the steel industry, "in 2025, the proportion of electric furnace steel production in total crude steel production should be increased to more than 15%". In the future, with the gradual improvement of steel scrap resources, power and other supporting conditions, the process structure adjustment is an inevitable trend, but the adjustment period may be longer. It is expected that it will take 25-30 years or more for China to increase the proportion of electric furnace steel from 10% to 30%, which is bound to be accompanied by continuous fluctuations and adjustments.

Therefore, to ensure the end energy use of the steel industry, we should make efforts from three aspects:

First, vigorously carry out the construction of distributed photovoltaic power stations. The main energy consumption of iron and steel enterprises is coal and coke. Electricity only accounts for 6.3% of the energy consumption structure, and the proportion of green electricity in power consumption is less than 1%. The overall utilization level of new energy is still low. Iron and steel enterprises have a large area of roofs that can be used for photovoltaic power generation. At the same time, iron and steel enterprises are large electricity users, which is very suitable for the construction of distributed photovoltaic power stations. It is recommended to adopt the integrated installation form of photovoltaic buildings, and the electricity generated will be self-used for daily production, which can not only reflect the concept of energy saving and carbon reduction, but also provide green electricity supply.

Second, we will promote the integration of source, net, charge and storage projects. When the proportion of new energy is higher and higher, because of its volatility and intermittency, the coordinated development of source network and charge storage becomes particularly important. As a load user of the integration project of source network, charge and storage, in the case of serious lack of flexibility of the generation side of new energy in the future, in order to ensure the stable operation of the system, steel enterprises must deeply participate in the regulation of system operation, and fully tap the flexibility potential of the user side through sensitive price signals.

Third, to increase the proportion of spontaneous electricity in iron and steel enterprises. In recent years, the iron and steel industry has improved rapidly from the level of power generation. In 2021, the spontaneous electricity rate of China's iron and steel industry is 54%, but there is still a great potential. According to the "three functions" theory of iron and steel put forward by academician Yin Ruiyu, namely "product manufacturing function, energy conversion function and waste disposal function", iron and steel can play a more important role in the future circular economy, and iron and steel enterprises can "only buy coal, not electricity". According to theoretical calculation, no coking iron and steel enterprises can do 80% of the spontaneous electricity, coking can do 110%. The successful experience of many advanced enterprises in recent years has proved that it is possible to achieve this goal. Iron and steel enterprises should continue to improve the utilization efficiency of waste heat and energy and the proportion of self-generated electricity, so as to reduce the direct energy consumption and realize low-carbon production while ensuring their own power supply.