Although China remains the world top steel producer with a growing steel sector, the good old days for Chinese steelmakers are long gone.
Xinhua reported that after a decade of explosive growth, China steelmakers are now grappling with developmental bottlenecks and decreased profits.
Squeezed by increased production costs, China steel mills have been facing tough times since 2010 and experts say their troubles are not likely to end any time soon.
Mr Zhang Changfu deputy head of the China Iron and Steel Association said "All steel companies are teetering on the brink of deficit, hurt by surging raw material costs, tightened liquidity and slumping product prices. Profit margins in October fell to 0.47%."
According to the National Development and Reform Commission, the country's top economic planner, in the first three quarters, China produced 525.7 million tonnes of crude steel up by 10.7%YoY.
The output figure was set to lift the year production to a new high. But the expansion came at a much slower pace compared to the 22.6% annual growth rate experienced between 2001 to 2005.
The CISA said in a report that the steel industry total profit margin stood at merely 2.99% in the first nine months of this year representing a significant slowdown from the 8% margin recorded in the 2001-2005 period.
All of these factors indicate that the industry is in the middle of a cooling trend. Analysts believe the low figures will continue into next year in light of stubbornly high iron ore prices and weakening demand.
As a growth engine of the global economy for more than a decade, China appetite for foreign iron ore has increased dramatically over the past decade. In 2000, the country imported 69.97 million tonnes of iron ore. Last year, that number surged to 620 million tonnes.
Despite being a top purchaser, China does not have much bargaining clout and has actually pushed up global prices with its large demand.
According to the CISA statistics, in the first nine months of this year, China imported iron ore prices reached USD 165.74 per tonne up by 35.35%YoY.
According to a report by Guosen Securities although they are likely to drop in 2012, prices will remain between 130 and 150 US dollars per tonnes.
Mr Zhao Xiang'e an analyst with Huatai United Securities said however, rising imports will leave China with little room to reduce its dependence on foreign iron ore next year.
(Sourced from Xinhua)
