Revelation for recent steel pipe market

First, bank debt for new capacity must be tightly controlled. Back to the original intention of the supply-side structural reform of round steel pipe proposed in 2015, it is an important task to defuse the debt leverage risk of surplus industries.Through a series of measures, such as eliminating backward production capacity, cracking down on “ground steel” and upgrading environmental protection, the steel industry has significantly improved the quality of supply over the past three years, and the overall debt level has also significantly decreased. According to cisa statistics, the overall asset-liability ratio of key steel enterprises was 78% in 2015 and 70% in August 2019, down nearly 10 percentage points. However, it should be noted that the rapid recovery of industry profits in the past two years is inspiring a new round of enthusiasm for upgrading and expansion. In this process, if bank credit is allowed to flood in, it is likely to repeat the same mistakes in the future.

Therefore, it is necessary to strengthen window guidance and strictly control the bank debt of new production capacity, both private and state-owned enterprises should be strictly controlled, and Banks themselves should also be sober judgment.The situation of China steel tube manufacturer is a little more complicated, carrying a lot of things, often not easy to control, may be difficult, but this is exactly the point.It is the enterprise’s own business for private enterprises to expand production through their own funds and take risks by themselves. In fact, cost control of some private enterprises is better than that of state-owned enterprises, and their competitiveness is relatively strong.

Second, steelmakers need to be cautious about buying capacity targets. Supply-side structural reform aims to release effective capacity, improve the quality of supply and defuse debt risks in the industry. The elimination of backward production capacity and the attack on ground steel have benefited high-quality production capacity, improved corporate profits and promoted capacity replacement. Policies to encourage capacity replacement have three benefits. First, the capacity structure should be optimized through the market mechanism so that competitive enterprises can further expand and become stronger. Second, combining scientific and reasonable regional planning to optimize the regional layout of the total production capacity of square steel pipe;The third is to reduce the overall debt risk of the industry. Some inefficient production capacity can be converted into cash to improve the solvency. However, as an enterprise, it is easy to be affected by short-term profits exceeding expectations, which leads to the impulse to expand. Similar to the principle that “everyone is a god in the bull market”, many steel pipe suppliers have made a lot of money in the past two years, which is believed to be the strong ability of the enterprise, the lofty sentiment towards the road of expansion, and the purchase of capacity indicators.