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Qatar Tribune
21 hours ago
- Business
- Qatar Tribune
China's steelmakers cool competitive fires as price war cuts profit margins
Agencies As a fierce price war threatens to turn their revenues microscopic, China's steel firms are calling for changes to make the industry less self-destructive – a move in line with directives from Beijing to suppress a downward spiral that has degraded multiple sectors of the country's economy. While acknowledging the seemingly endless drive to reduce prices is erasing profit margins, industry insiders still struggle to find a market for their chronic oversupply, and expressed scepticism over the extent to which the state-led campaign can alleviate their burdens. Steel is regarded as one of several sectors experiencing a phenomenon referred to by officials as neijuan or 'involution', a cutthroat level of competition where firms pour increasing resources into efforts that yield diminishing returns. The term has made more frequent appearances in high-level political meetings. 'Steel firms are selling below cost to clear inventory and maintain cash flow, but the more we produce, the more we lose,' said Michael Cao, who owns a mid-sized steel company in the northern province of Hebei that employs over 100 workers. 'This is actually drinking poison to quench thirst,' he said. 'You may survive for now, but you'll ultimately need to rely on innovation and differentiated services for lasting change.' However, Cao added, the massive amounts of funding required to upgrade factory infrastructure, coupled with shrinking demand, are keeping companies from pursuing innovation and distinguishing themselves in the labour costs are another challenge, as some rivals skimp on employee benefits to lower costs and slash prices further, Cao noted. As a positive example, he cited e-commerce giant decision to provide social insurance benefits to its delivery workers. 'With everyone on equal footing, price undercutting is harder, fostering fairer competition.' Last week, the country's Supreme People's Court issued a ruling voiding any agreements to skip social insurance contributions, even those mutually agreed upon or initiated by employees. Employers often dodge these payments, and some workers request cash as a substitute to increase their take-home pay. After nearly all the country's major steel companies reported losing money in the third quarter of 2024, the industry made production cuts that have led to a slight recovery, said Huatai Securities in a note published on Thursday. While the industry saw rapid profit growth in the first half of the year, its average sales profit margin ranks among the lowest in all industrial sectors and prices have remained low, according to the China Iron and Steel Association. In the first six months, selected major companies achieved a total profit of 59.2 billion yuan (US$8.24 billion), up over 60 per cent year-on-year; however, the average profit margin was only 1.97 per cent. Nearly a quarter reported losses, down 18 percentage points from last year. Policies intended to end the race to the bottom could further reduce crude steel output, boosting profits, Huatai's analysts said. These could include a price supervision system and cost standards created by the association, its head Zhao Minge was quoted as saying by China Metallurgical News last week. 'The steel industry's core issue remains supply-demand imbalance,' Zhao said, stressing that new policies over excessive capacity have yet to be systematised or clearly defined. David Wang, a steel company owner from the eastern province of Jiangsu, said oversupply has persisted despite decades of rhetoric about capacity reduction. He expressed doubt that things would change soon.
South China Morning Post
3 days ago
- Business
- South China Morning Post
China's steelmakers cool competitive fires as price war cuts profit margins
As a fierce price war threatens to turn their revenues microscopic, China's steel firms are calling for changes to make the industry less self-destructive – a move in line with directives from Beijing to suppress a downward spiral that has degraded multiple sectors of the country's economy. Advertisement While acknowledging the seemingly endless drive to reduce prices is erasing profit margins, industry insiders still struggle to find a market for their chronic oversupply, and expressed scepticism over the extent to which the state-led campaign can alleviate their burdens. Steel is regarded as one of several sectors experiencing a phenomenon referred to by officials as neijuan or 'involution' , a cutthroat level of competition where firms pour increasing resources into efforts that yield diminishing returns. The term has made more frequent appearances in high-level political meetings. 'Steel firms are selling below cost to clear inventory and maintain cash flow, but the more we produce, the more we lose,' said Michael Cao, who owns a mid-sized steel company in the northern province of Hebei that employs over 100 workers. 'This is actually drinking poison to quench thirst,' he said. 'You may survive for now, but you'll ultimately need to rely on innovation and differentiated services for lasting change.' Advertisement However, Cao added, the massive amounts of funding required to upgrade factory infrastructure, coupled with shrinking demand, are keeping companies from pursuing innovation and distinguishing themselves in the market.
