In 2014, the middle reaches of the manufacturing sector began to repair their balance sheets, to 2016 has been three years or so, the highest cost of enterprises have begun to profit from the industry; the present situation, the steel industry is not a serious excess capacity. The biggest variable lies in midstream processing enterprises. Through the supply side reforms in 2016 make snap, multi commodity steel production chain is also fierce fluctuations throughout the year, the coil, the main rebar futures prices rose by about 80% compared with the beginning of last year, the main iron ore futures rose is reached 110%.
China and Thailand securities analyst Benedict Hui believes that in 2016 the entire steel industry profit recovery, is facing is not a single industry, but all of the middle reaches of the manufacturing sector facing the situation, such as chemical industry, papermaking, light industry, nonferrous metals and other profit is better, is the fundamental reason
In the past few years, companies have been able to repair their balance sheets:
(1) the enterprise not only live frugally, the steel industry is no capital expenditure, all of enterprises have no capital expenditure, it is not the money into real money, off the virtual reality;
(2) reduction in desirable inventory levels. Desirable inventory refers to the center of the whole economy.
In 2006-2007, for example, when the iron and steel industry raw material inventory of iron ore inventory level of about 6 months, with a median of 6 months to swing up and down, paper is about half a month and a half. At this stage, the level of iron ore inventory is only about 25 days, about 5 days of paper. Reducing the level of acceptable inventory is a way to repair the balance sheet.
The desired inventory depends on two points, one is the improvement of the medium and long term economic expectations, the two is the balance sheet repair. So it can be seen, although in 2016 PPI and other industrial index continued to improve, industrial enterprise earnings continue to recover, but the entire industrial inventory is still very low pressure. This phenomenon is mainly because of two things: first, people's expectations have not been repaired; second, before the balance sheet has not been fully repaired, even if the enterprise has accumulated profits, they will be the first choice to reduce leverage, and not make expansion moves.
The industry accumulated a large number of invalid register capacity
The company's balance sheet to further repair, mainly to see the three indicators, namely, asset liability ratio, industrial concentration and capacity utilization: the middle reaches of the industrial enterprises of the asset liability ratio from 2014 began to gradually decline. 2016 steel price increases rapidly. Because of the large number of enterprises Guantingbingzhuan, resulting in the middle reaches of the manufacturing sector actual industrial concentration rises sharply, the expansion of profit.
In addition, the capacity utilization rate is actually divided into two kinds, one is in the capacity utilization rate, one is the actual capacity utilization rate. The overall capacity utilization is still low, but the real industry capacity utilization is high. In the capacity utilization rate and the actual capacity utilization rate of the main reason for these differences is that in recent years a large number of enterprises Guantingbingzhuan, although in this part of the enterprise production capacity, but shut down for longer periods of time, many have been difficult to restart, gradually become invalid capacity.
How to observe the phenomenon, mainly to observe the highest cost of production in the industry can make money. In the steel industry, for example, can observe the Shougang Caofeidian project or the Bayi Iron and steel, because of the higher costs of these enterprises, the past few years of huge losses, but in 2016 the highest marginal cost of enterprises began to profit, the whole industry real capacity utilization in a relatively high state.
There is no supply side reform, production capacity will decline
In addition, also need to pay attention to the steel industry equipment equipment cycle, a period of about 14, 15 years, that is to say even if there is no supply side reforms, productivity will decline still, because these capacity gradually entered the end state, the wave of capital began in 2002 the formation cycle has entered the end. Therefore, even if there is no supply side reform in 2017, the production capacity will decline because of the corresponding end-of-life to. If environmental protection and supply side reforms are exacerbated by human interference, the balance sheet of industrial enterprises will be further accelerated.
Benedict Hui believes that from the industry present situation, the steel industry is not a serious excess capacity, is actually a tight balance of a state. In particular, sheet metal products, the production capacity of each enterprise is in a very full state, and even some of the super. Therefore, if you go to production capacity, such as 20 million tons, it will show a strong profit elasticity of the industry as a whole. Therefore, we believe that the supply side reforms is the icing on the cake, no supply side reforms, from the period of view is very healthy.