China's steel industry faces reshuffle

China's Ministry of Industry and Information Technology on Monday said it will unleash a new guidance for restructuring China's key manufacturers.

And the country's dire steel factories are its main target. Industry experts say a wide restructuring of the entire steel industry will be inevitable. But this could actually present itself as an opportunity for big industry players to consolidate.

Over-produced Chinese steel manufactures have almost no option than restructuring themselves. In the first 9 months of the year, the country's steel industry suffered a combined loss of as high as 5.5 billion yuan, reversing last year's staggering profit of 38.7 billion yuan.

Industry experts say that low industry concentration and huge steel stockpiles are the main reason behind this.

Wang Xiaoqi, vice-president of China Iron & Steel Association, said, "Over production and low concentration of manufacturers have led to our low prices in the steel market. Everyone is engaging in a cut-throat competition, which further presses prices down to the 1994 level. The true solution to this matter, we will have to obsolete some factories with low competence."

Statistics show the profit of steel industry is at its 10-year low, with production costs, raw materials, fuel, and labour costs all going up faster than the price of steel. The government wants this round of restructuring to follow market economy rules, which means production according to demand.

Zhang Dechen, director of Raw Material Department under Ministry of Industry and Information Technology, said, "The focus is to support big steel companies to carry out cross region M&As. It also aims to reduce the number of steel manufacturers, close down some factories. "

The policy also aims to optimize the structure of production, and enlarge the economy of scale. Customs data shows that China's iron ore imports have surged by more than three times from 2003 to 2011, but the price has risen about four times during this period.