As a result, in December of the same year, Chinese President Xi Jinping declared that China formally entered an era of xin chang tai. In English, the term translates to “new normal” or “a new state of normality.” His statement acknowledged the nation’s slowing growth and addressed the need to create a growth structure centered on investment and innovation.

China’s “new normal” is about transitioning to this new way of growth. Changes in the country’s economic fundamentals, including the “new normal” market environment, also apply to the Chinese steel industry. As a result, the industry, too, is searching for new solutions.

Shifting Gears

Over the past few decades, the Chinese economy grew at unprecedented rates, which caused a variety of problems both domestically and internationally. Rapid growth was accompanied by adverse effects, such as regional and socioeconomic inequality, environmental pollution, abuse of natural resources and overcapacity.

In the “new normal” era, China aims to address current economic and social issues while seeking growth through innovation. To achieve this goal, Xi Jinping created a five step “new normal” plan.

The first step is to adopt new technologies and business models to increase the utilization of private capital and the diversification of investment sources. The second step is to satisfy a broad spectrum of consumer demands. The third is to focus on high-tech industries to attract foreign capital. The fourth is to reinforce quality-based market competition structures. And finally, according to the five-point plan, there will be a strong emphasis on conserving resources and protecting the environment.

The Three Lows

The “new normal” era signals a major economical shift for China. The far reaching changes in the nation’s economic fundamentals are characterized by “three lows.”

The first low involves China’s steel production and consumption. Both of these areas are facing low growth, and an early peak is considered to be fast approaching, according to experts. The China Iron and Steel Association (CISA) estimates that the country’s crude steel production recorded negative growth in 2015 for the first time since 2000.

Second, steel prices have been declining steadily, due to oversupply related to overcapacity, intensified price competition and pressure from the excess supply of iron ore. China’s crude steel production led the global “raw materials super cycle” in the 2000s, but its slowdown is gradually freezing demand for iron ore.

Third, China’s steel industry is transitioning from a period of low profit to a period of zero margins. The industry’s pretax profit margin was as high as 8 percent in 2007, but the figure has barely remained above zero in recent years, recording 0.04 percent in 2012, 0.48 percent in 2013 and 0.85 percent in 2014.

Transforming China

In the new era, China’s steel industry aims to overcome crises through four major strategies. First, steel companies are actively building overseas production bases and seeking export markets to relieve domestic oversupply. Second, steel companies are pursuing survival through integration that transcends ownership schemes and regional borders.

Companies are also fostering non-steel businesses to make up for the faltering steel market. CISA estimates that China’s steel industry derived over 90 percent of its gross profit from non-steel businesses in 2013 and 2014.

Finally, the steel industry is improving profitability through advanced technology and improved product quality. Additionally, it is increasing brand power, upgrading operation technologies and making drastic changes to business models.

Developing these areas is important because, according to experts, the competitiveness of the steel industry now depends on advanced operation technologies, brand innovation and IT services more than ever.

The Future of Steel in China

A CISA representative forecasted massive transformations in China’s steel industry. Two of the major projected changes expected to occur in the next five to ten years are increased exports and entry into overseas markets. These signs of change are already visible, as the Chinese government recently opened the doors of its steel industry to foreign capital.

Exports have soared due to the depressed domestic steel market, and government policies to move steel facilities overseas are being put into effect. Experts agree that this move will have a positive impact on China’s steel industry.

The Chinese steel market is expected to expand further, as steel companies are predicted to double their efforts to increase exports and enter overseas markets. The opening of the nation’s steel industry will no doubt bring about changes for the global steel market, especially considering that China makes up half of it.

Related Link:

In Southeast Asia, Surging Imports Lead to Rising Trade Barriers

The Future of Manufacturing in Korea

The Evolution of the Steel Production Process

The Myth and Reality of Global Steel Overcapacity

POSRI Releases First Edition of Bi-Annual English Journal “Asian Steel Watch”

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To analyze and explain the role of steel in the world, POSRI (POSCO Research Institute) has created Asian Steel Watch, a bi-annual journal that features content focused on the Asian steel industry.

This new journal is published in English and will cover current issues, as well as market forecasts and analysis. It is published by POSRI, which provides research-based consulting services for the steel industry.

POSRI, a subsidiary of POSCO, investigates the current economic issues and industries related to steel, making it the perfect organization to publish an informative and interesting journal about steel.

Asian Steel Watch provides in-depth analysis of the ever-changing trends in supply and demand and imports and exports, as well as the prices of steel products. It will also offer a broad analysis and insight into Asia’s macroeconomic environment and the trends in key Asian steel-consuming industries.

Ohjoon Kwon, President of POSCO, has big plans for this new publication, noting, “Asian Steel Watch will provide useful information that will guide governments and enterprises through current issues in the Asian steel market, including oversupply, customs duties, antidumping measures and environmental regulations.”

The steel industry supports each country’s manufacturing sector and overall economy. In order to maintain a stable economy, it’s essential to have access to timely information and analysis about the steel industry.

President Kwon stated, “At a time when information is power, Asian Steel Watch provides a firm foundation for the collaborative growth of Asia’s steel industry, further contributing to the stability and prosperity of the global steel market.”

Coming Up

In the first edition of POSRI’s Asian Steel Watch, a number of interesting stories, from “The Myth and Reality of Global Steel Overcapacity” to “China’s Steel Industry Meets the New Normal” were covered.

Some of the subjects explored in the bi-annual journal will be featured on The Steel Wire over the next few months.

The Myth and Reality of Global Steel Overcapacity: Overcapacity has long been blamed as the main cause of the recession in the steel industry (especially the price decline), but this claim has not yet been backed by enough systematic analysis. Through an expert Q&A with Dr. Rod Beddows we’ll answer the most common questions regarding overcapacity.

The Evolution of the Steel Production Process: The steel industry has continued to grow thanks to the superior characteristics of steel materials and economic mass production. We’ll discuss how mankind first began making steel using charcoal during the Iron Age, as well as how the steel production process has developed since then.

China’s Steel Industry Meets the New Normal: China’s economy maintained a double-digit annual growth rate for decades, and then slowed to around 7% in 2012. Chinese authorities have described this as the “new normal” state. Now China’s steel industry is aiming to find a new way of growth.

Korea’s Next Big Manufacturing Leap: Innovation Based on Culture, Creative Workforce, and Technology: Concerns are mounting over Korea’s manufacturing sector. Growth continues to taper, and profits keep falling. This is due largely to the sluggish global economy, which is struggling to recover, and to Korea being nudged out by its rivals, China and Japan.

Increased Trade Barriers in Southeast Asia Following a Rapid Rise in Steel Imports: Many Southeast Asian countries have concerns over surging Chinese steel imports and the subsequent loss of competitiveness of their steel industries. Amid an ongoing supply glut in the global steel industry, Southeast Asia has become a major destination for excess steel products from China.

Related Link:

In Southeast Asia, Surging Imports Lead to Rising Trade Barriers

The Future of Manufacturing in Korea

China’s Era of New Normal and its Implications on the Steel Industry

The Evolution of the Steel Production Process

The Myth and Reality of Global Steel Overcapacity

Be sure you never miss any of the exciting steel stories from The Steel Wire by subscribing to our blog.

However, POSCO was somewhat different. The Korean steel giant demonstrated a true strength in this doomed age, through achieving a higher operating profit than ArcelorMittal, Baoshan Steel and Nippon Steel Corporation by 2 to 6 percent in the first three quarters of 2012. It was possible because POSCO had secured a lucrative profitability by focusing on developing distinctive product lines and cost reduction. In fact, POSCO’s high added value products, such as ‘World First’ and ‘World Best’ lines, have shown increases in sales from the 2Q 2012. The exports of steel sheets for automobiles and the sales of thick plates for energy-use have also surged higher than the previous year.

POSCO’s financial position also reflects its fine fitness. In the 3Q 2012, its debt ratio narrowed down to 35.9 percent, 4.3 percent lower figure year-on-year, and a ratio of net worth was increased by 2.3 percent. POSCO’s credit rating excels other steel makers on the basis of such figures. POSCO is rated the highest, amongst its steelmaker competitors, by Fitch IBCA, Moody’s and the Standard & Poor’s, the world’s three major credit rating agencies. It indicates, amidst the global economic downturn, POSCO has achieved stable profits and a sound financial structure as well as presenting an optimistic growth potential.

In June 2012, the World Steel Dynamics (WSD), a leading steel information institute, has awarded POSCO as ‘World’s Most Competitive Steelmaker’ for 3 consecutive years. The World Economic Forum in Davos ranked POSCO at 30th in ‘the Global 100 Most Sustainable Corporations’ in January 2012. These facts and figures reflect POSCO’s globally recognized superior innovation in technologies, production scale, profitability and price power. Once again, POSCO proved itself to be the No. 1 steelmaker of the world.

For POSCO, 2013 looks even brighter. According to the Korea Iron and Steel Association (KISA) and POSCO Research Institute (POSRI), Korean steel industry is anticipated to enjoy a much optimistic year. From the second half of 2013, an expansion in the investments for China’s infrastructure with the nation’s new government and a recovery of the U.S.’s economy is forecasted to take place. They are highly positive factors for POSCO’s another triumphant business year. Kyung-joong Kim, a steel industry analyst of Eugene Investment and Securities, commented “POSCO is increasing its emphasis on providing highly profitable and fine quality products such as steel sheets for car manufactures and energy business from the current 34 percent.” “It seems the firm will be benefiting from a higher profitability than its competitors in 2013,” he added.