This week, a report from the China Iron and Steel Association showed that the probability of this year's steel industry profit exceeding last year's by more than 10 times is relatively high, with an estimate that the steel industry's profit in 2013 will reach about 21 billion yuan. Industry insiders expect the overall profit of the steel industry this year to be more than 10 times that of last year, but this is because last year's profit base for the entire industry was very low.

　　Because steel prices have shown a trend of rising and then falling back, and the problem of overcapacity cannot be solved in a short period, most industry insiders are not optimistic about the prospects of the steel industry. They believe the road to recovery will take at least three years and advise investors to operate cautiously in A-share steel stocks.

　　Current situation: order volume of steel trading enterprises up less than 10% month on month

　　Due to rising transactions, “gradual recovery” has become the main tone for most large steel enterprises at present. A reporter conducted telephone interviews with relevant personnel from Wuhan Iron and Steel and Baosteel, both of whom said: in the second half of the year, the company's main business revenue grew rapidly, steel transactions gradually recovered, and transactions of specialty products increased; after November, steel sales are still continuing to grow.

　　The previously released third-quarter reports were indeed consistent with the tone of recovery: in the first three quarters, 33 listed steel companies together achieved a net profit attributable to shareholders of the parent company of 5.851 billion yuan, compared with a loss of 3.288 billion yuan in the same period last year. Among the 33 companies, 14 achieved year-on-year growth in performance in the first three quarters, and 8 reduced losses.

　　However, the “growth” trend is not so obvious in Guangdong. Boss Liu at a wharf in Huangpu Port, Guangdong, said: “The obvious growth period was actually July to August. After the peak season in September, transaction volume instead became moderate, and the expected hot sales period of Golden September and Silver October did not appear. For this reason, most enterprises in the industry are relatively cautious when stocking up and will not hoard too many products.”

　　Boss Chen believes: “The home appliance and real estate enterprises I am familiar with have demand, but no substantial growth. Their need for ordinary steel is limited, and specialty products have even decreased somewhat, which has affected the overall recovery speed of the steel industry.”

　　It is understood that from October to November, steel trading enterprises similar to these increased their order volume from northern steel producers (most of them listed companies) by 10% to 25% year on year, but the month-on-month growth rate was less than 10%. From the fourth quarter to the first quarter of next year, there are temporarily no signs of explosive growth.

　　Outlook: limited upside; a batch of backward enterprises needs to be eliminated within two years

　　As for the recovery of the steel industry, most industry insiders are not optimistic, and the signs of “weak recovery” are quite obvious. The expectation of “10 times the performance” is also based on the low base created by last year's industry-wide losses. The reporter learned in depth that there are currently many factors constraining the recovery of the steel industry.

　　From the sales side, the upside for steel prices in the future is limited, and prices may fluctuate in place or fall slightly. The reporter learned from the Guangzhou spot market that the main rebar product HRB400 refreshed a new high since the end of March this year over the weekend just past, reaching 3,900 yuan/ton. It is currently showing a trend of rising and then falling back, now reported at 3,880 yuan/ton.

　　From the cost side, iron ore prices remain relatively stable and have not fallen sharply because of the launch of iron ore futures or the decline in international precious metal prices. At the end of October, the China Iron and Steel Association iron ore price index was 468.23 points, up 4.85% month on month; the price of domestic iron concentrate was 892.15 yuan/ton, and the CIF price of imported iron ore (fine ore) was 139.81 USD/ton. After adjustment, the imported ore price has rebounded to the level at the beginning of the year, meaning that the situation of meager profits in the main business of China's steel industry will be difficult to reverse in the short term.

　　Finally, from the perspective of market demand, the phenomenon of “industrial overcapacity” has not been thoroughly alleviated, and many enterprises still face considerable inventory pressure. Relevant personnel from Wuhan Iron and Steel said: “The investment threshold for small steel enterprises is very low; a few million yuan is enough to build a steel mill for steelmaking. In the past two years, some idle capital in the central and western regions has also joined the trend of large-scale steelmaking, increasing the overall market supply.”

　　For this reason, analysts believe that overcapacity remains the biggest difficulty facing the steel industry at present, and intensified competition is inevitable. The industry needs one to two years to eliminate a batch of backward enterprises before it can develop healthily on that basis; the recovery process is expected to take at least three years.