Loss-making domestic iron ore industry faces new opportunities

Since the beginning of this year, the downward pressure on the Chinese economy has increased. Crude steel production has experienced a rare decline in 40 years. The demand for the steel market has continued to weaken. At the same time, the international iron ore giants have continued to increase production, and the global supply surplus has further intensified. Under the joint pressure of both supply and demand, iron ore prices have continued to fall sharply, domestic mine production costs and prices have been upside down, and the industry’s loss has continued to expand. Small and medium-sized mines have been shut down and large and medium-sized mines are struggling. Mineral rights trading and mineral rights transfer have also been seriously affected. In the face of the industry's overall loss-making dilemma, how domestic mining companies must survive and develop in the cold winter has become a top priority for the company. Some analysts pointed out sharply: "Some companies have no profit and hematopoietic function, but can only postpone their survival time and are on the verge of cutting production and closing."

According to reports, in the first 10 months of this year, China's mines above designated size achieved an operating income of 616.01 billion yuan, a year-on-year decrease of 19.8%, and a total profit of 35.99 billion yuan, a year-on-year decrease of 43.2%. Among them, large-scale mining companies suffered a total loss of 5.25 billion yuan. The total losses of the 12 major large-scale mining enterprises counted by the China Metallurgical and Mining Enterprises Association totaled 800 million yuan, including the largest loss in the Hegang Mining Group; all major listed iron ore companies also suffered losses, including Pangang's first three quarters of decline in vanadium and titanium profits. The rate has reached a staggering 1211.2%.

The investment of domestic mining companies has also weakened significantly this year, and even the first negative growth in the past decade has occurred; at the same time, the mine production capacity has also shown an accelerating downward trend; the company’s financial conditions have deteriorated, liabilities have increased, financial expenses have soared, and funding has been extremely tight. Zhu Jimin, executive vice president of the China Iron and Steel Association, said at the meeting that the current market situation facing the mines and steel industry is very serious and the adjustment of the industrial chain structure is imperative.

With China's economic restructuring and changes in its development mode, the development of urbanization has slowed down, and the growth rate of investment in fixed assets has also slowed down significantly. The peak demand for steel products has emerged and began to slowly decline. Lei Pingxi believes that the inflection point of iron ore consumption intensity has already emerged, the demand capacity has decreased, and the supply capacity has increased. The oversupply will remain for a period of time, during which the price will remain in the downtrend channel. Li Xinchuang, dean of the Institute of Iron and Steel Industry Planning, predicts that the demand for iron ore in China will be approximately 1.109 billion tons in 2015, and will drop to 920 million tons by 2020. By 2030, this figure will further drop to 710 million tons. . At the same time, the annual increase in scrap consumption will also dampen the iron ore market demand.

The oversupply of iron ore market is unlikely to improve in the short term, but in the medium and long term, there is still room for industrialization and urbanization in China. The construction of “Made in China 2025” and “One Belt and One Road” will involve large amounts of steel consumption, along with the industry. After the adjustment of the overall structure is completed, the iron ore market will return to a balance between supply and demand. At that time, the ore price may slowly rise. Analysts expect that this balance will occur around 2018, but he also stressed that the ore price is unlikely to return to the previous high level, and the iron ore industry will enter the era of meager profits.

Faced with the predicament of current "bleeding" operations, how should mining companies survive and develop in the cold winter? The industry believes that "cost is the deciding factor and turning losses is the top priority". In the current period, the primary task of the company is to maintain its survival. We must begin by reducing costs and increasing efficiency. Mining companies should strive to reduce production costs from the aspects of technology, management, and corruption, and spend the winter period in mining. Some of the costs are high. Mines should stop production as soon as possible to reduce losses.

Should seize the opportunity to promote industry consolidation. Experts suggest that we should optimize the industrial structure through survival of the fittest, develop regional mines, and cultivate leading enterprises. Analysts also believe that the current downturn of mining companies is also an opportunity period for mergers and acquisitions in the industry, and we should seize this opportunity to select high-quality projects, conduct equity participation, mergers and acquisitions, and eliminate high-cost mines.

The transformation and upgrading of new mines is the key to the future development of mining companies. The future development direction of mining enterprises is to achieve green, reduced, differentiated, service-oriented, intelligent, and international development. It is necessary to use "Internet +" and other means to support enterprise business process reengineering, business model transformation, and green development needs. And the integration and optimization of the entire steel industry chain resources.