Sky-rocketing iron ore prices have also brought the problems of China's steel industry to light. Low centralization, overcapacity and high storage rates have been haunting the sound development of the sector.
Wang Chaojun, a private steel mill owner, says the most difficult task will be controlling costs, given the unpredictable market price of products and relentless price increases of raw materials. From his point of view, steel makers have seen the end of colossal profits and the sector needs restructuring.
Wang Chaojun said, "The steel industry wants to be regrouped because it is inevitable. There are too many private mills and energy consumption is very high. We think the industry can only revive through companies merging and energy saving."
Low centralization, overcapacity and high storage rates have been clouding the industry. In 2009, the five largest steel companies only accounted for 29 percent in terms of centralization, far below international levels. The large number of small mills also explains China's lack of negotiating power with suppliers.
In 2009, industrial capacity exceeded 700 million tons while the domestic market could only consume about 560 million. The excess capacity is estimated at over 100 million tons. The situation may worsen this year as analysts predict demand will continue to lag behind supply.
Sun Jiqing, Researcher of Dongxing Securities, said, "The profitability of the steel sector is at a bottle neck. The big price jump has set the ceiling for manufacturers' profits."
Eliminating backward production facilities, encouraging mergers and purchasing shares in foreign mines are widely recognized as measures to revive the industry. Relevant state departments are formulating policies to encourage regrouping. Meanwhile, steel makers are also speeding up their investment in overseas mines.