How does China's steel industry turn around?

**Abstract** Recently, a news report about Wuhan Iron and Steel (WISCO) spending billions on pig farming quickly became a hot topic in the industry. Not only that, but Guangzhou Iron and Steel started selling sausages, while Jinan Iron and Steel aimed to enter agriculture. The steel industry's diversification into various sidelines has sparked laughter, yet it reflects a deeper issue: the challenges faced by the steel sector today. **1. Why is China’s Steel Industry Going Through a “Freezing Period”?** The main cause is overcapacity. Globally, after the financial crisis and the European debt crisis, steel utilization rates dropped to 79.6% in May 2012. Slow global economic recovery and weak real estate markets have further worsened the situation. In response, the Chinese government introduced stimulus measures, leading to speculative investments and increased production. This resulted in supply outpacing demand, creating severe overcapacity. Domestically, the steel industry is capital-intensive. Banks hold large loans, and if production slows due to inventory buildup, it could trigger panic. Companies also fear losing market share if they reduce output, so they often accept lower prices rather than cut back. Additionally, international trade barriers, such as anti-dumping duties from the EU and the U.S., have made it harder for Chinese steel to compete globally. **2. Will the Next 18 Months Bring a Wave of Mergers and Acquisitions?** In 2013, excess capacity reached 479 million tons, with utilization rates below 80%, indicating a difficult period. To remain competitive, steel companies will need to cut costs, reduce staff, and restructure. This is expected to lead to a wave of mergers and acquisitions, resulting in fewer but more efficient producers. **3. What Are the Four Major Challenges Facing the Future of China’s Steel Industry?** First, eliminating outdated and excess capacity remains a key challenge. Second, increasing pressure on resources, energy, and the environment requires greater investment in sustainability. Third, poor performance due to low demand, high production growth, and volatile raw material prices has led to declining profits. Finally, improving technological innovation is essential to stay competitive in a global market where top firms are constantly advancing. **4. How Can the Steel Industry Escape the “Ice Age”?** Despite the challenges, there are opportunities. Many regions are still in early or mid-industrialization stages, and emerging industries like green energy and high-tech manufacturing will boost steel demand. To move forward, the industry must: - **Reduce production** to balance supply and demand. - **Enhance differentiated competitiveness** by focusing on high-end markets and customer needs. - **Drive innovation** in technology, management, and business models. - **Shift mindsets** from scale to efficiency, quality, and customer satisfaction. - **Embrace ecological responsibility** through green development and energy efficiency. - **Build a secure resource system**, including domestic and international sourcing strategies. - **Encourage government support** through industrial funds to guide sustainable development. **Expert Introduction:** Acer, formerly known as Zhang Qiang, is a renowned financial scientist and expert in financing. He is a visiting professor at Beijing Jiaotong University, researcher at the Securities and Futures Institute of Central University of Finance and Economics, and chief financial scientist at the China Financial Think Tank. He serves as a financial advisor to governments and listed companies, and is the Secretary General of the China Economic and Industrial Fund Council. He is also a regular commentator on CCTV Finance.

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