Cutting Steel Production Helps Chinese Mills Increase Profits

Chinese steel companies have raised profit margins to 3,000 percent - a result of global price increases on the one hand and the closure of some of the oldest and least efficient factories on the other.

According to Xinhua News Agency, 11 companies listed on the Chinese stock exchange announced financial results for 2017, in which they reported profits totaling 20.13 billion yuan (about $ 3.18 billion). In 2016, the same companies recorded 1.25 billion yuan ($ 200 million). In a commentary on the results, HVS announced that the closure of some furnaces improved supply-demand ratios, leading to higher prices.

On the other hand, the least efficient and therefore most profitable furnaces, which produced low quality and therefore cheap steel, were shut down. This increased profits.

According to brokerage company CLSA, the margin in the case of rebar last year was 922 yuan, while the average for the past five years was 251 yuan. This year, the margin is currently 866 yuan. For hot rolled steel, the five-year average is 259 yuan, and this year the margin is 865 yuan.

Over the past two years, China has eliminated about 115 million tonnes of production capacity. Despite this, the kilns, which were effectively shut down, allowed capacity utilization to increase from 66.99 to 2015 to 84.7 in the previous year.

This year, China is set to shut down another 30 million tons of the oldest and least efficient manufacturing facilities at its steel mills.

The main reason for the Chinese fight against obsolete stoves is the fight to improve air quality. In Tangshan, one of China's largest metallurgical centers, PM2.5 particulate matter has decreased by 42.6 percent over the past year compared to 2013.

However, it was 66 micrograms per cubic meter (the European standard is 25 micrograms). Tangshan, which has ruled out 44.7 million tonnes of production capacity since 2013, will create additional constraints for businesses.