China’s steel industry is facing a problem due to government reforms regarding emissions from the steel supply. The steel industry is facing a slow increase in demand and a high cost of production. China Iron & Steel Association (CISA) reported that in the first half of the year, the profits of most of the mills declined. CISA has turned attention to the measures needed to raise the steel industry’s performance.

Profits of ninety steel mills had decreased by 63.4%, which accounted for $13.9 billion from Jan-July in 2022. The decline in profits is caused by a fall in steel prices due to low demand and the high cost of raw materials. Seventy percent of China’s steel industry is confronting a deficit, and the loss of 34 steel mills is 17.8 billion Yuan.

CISA reported that the total cost of hot metal manufacturing with coal and coke has surged from 35.1% to 49.4% and for iron ore increased to 44.4% due to a 71% increase in prices of coking coal, whereas prices of iron have decreased by 26%. Consumption of crude steel has reduced by 7.1%, and prices declined by 6.7% in China.

CISA suggested that steel mills adjust their productivity according to the contracts they receive and try to decrease the cost of production by enhancing the plant’s operational efficiency.

Effects on Real Estate Market:

China’s infrastructure investment increased by 7.4% in the first half of 2022 and 9.1% in July compared to 2021 but a downfall in the real estate market of China by 12.3% in July outweighs the increase in demand for infrastructure development. CISA reported that China consumes 1 billion tons of steel annually, and rebar has the largest share of 26% in steel consumption. Rebar consumption is estimated at 230 million tons in 2022 against 252 million tons in 2021, which shows that the property market has a decline in growth. It caused a fall in output by 14.7% in the first seven months of 2022.

Fall in Exports:

Exports from China remained at 40.07 million tons, with a decline of 6.9% compared to Due to the fall in steel prices worldwide, Chinese exporters were not interested in exports.

Research & Development:

Ninety steel mills of the CISA have raised funds for research & development (R & D) by 10.9%, in which the share of energy saving and environmental protection has increased from 25% to 30%. Funds for quality improvement have risen from 25% to 34%. China’s steel industry aims to upgrade its crude steel production capacity to 800 million tons per year with the “Ultra-Low Emissions” standards set by the government. The steel industry achieved 172 million tons of steel capacity aligned with government standards on August 25, 2022, while 122 million tons has achieved moderately. The steel industry has invested 150 Yuan for 400 million tons per year capacity of crude steel, and it required another investment of the same amount to achieve the target of the remaining 400 million tons. The steel industry needed more support from the government to achieve the target of 800 million tons of Ultra-Low Emissions standards.