China's steel industry extended the weakness seen in the second half of 2022 into the first two months this year, with approximately half of the steel-making companies in losses, Baosteel said on the investor interaction platform on May 22.

There had been a moderate recovery in demand since March, with improvements in the price differentials between purchases and sales compared to the beginning of the year. Some sectors such as infrastructure, household appliances, shipbuilding, and energy storage had relatively strong demand, while the real estate and automotive sectors were relatively weaker.

Steel prices retreated again in May, adding pressure to sales again. Baosteel ascribed the current weak cycle partly to the significant downturns in the real estate industry as China's urbanization came into a plateau phase and partly to the uncontrollable external factors, like the pandemic, the Russia-Ukraine conflict and the U.S. interest rate hikes, which jointly resulted in a significant decline in profitability in the industry.

Baosteel's statement suggests participants avoid excessive pessimism and highlights potential substantial changes in the steel industry landscape.

Baosteel sees an accelerated industry concentration through mergers and acquisitions, expecting the CR10 (concentration ratio of the top 10 enterprises) to rise from the current 43% to over 60% within the next 3-5 years.

Stricter environmental constraints are expected to eliminate some companies that do not want or are not able to improve emission standards and further enhance industry concentration.

In terms of raw materials, China's steel industry is expected to continue gaining pricing power on iron ore with the landing of overseas development of high-grade iron ore projects and the continued concentration of the industry. Besides, demand for iron ore will decline globally in the medium and long run, changing supply-demand fundamentals.

(Writing by Emma Yang  Editing by Harry Huo)
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