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China Iron and Steel Industry is Facing Tough Times

It was bound to happen. After a number of years of solid growth for virtually all of the Chinese owned and operated companies that produce steel in that vast land, the inevitable "correction" has begun to take place.

What that means, of course, is that China's huge iron and steel industry is suddenly facing the abyss. Hard times and waning sales have replaced the "boom times" of the recent past.

It appears that the primary reason for what has happened to China's iron and steel producing companies can be traced directly -- and quite easily -- to overcapacity and very strong competition from foreign companies.

Those two factors have caused sales and revenues to plummet. And that's just part of the story. Severe levels of pollution at company work sites have compounded the problem, making things even worse.

All of these problems have resulted in reduced income for many companies, lost jobs for many workers and expensive equipment that stands idle and unused because it is not needed right now.

One company, for example, spent millions of dollars and more than two years constructing a new blast furnace. Since its completion, it has remained idle, gathering "dust and rust." The investment now seems to have been a bad mistake and yet, the company that spent the money actually anticipated the problem.

Right now, according to the China Iron & Steel Association, roughly half of its eighty six members are losing money. That means they are operating "in the red."

The situation for this Chinese industry has gotten so bad that the average iron and steel producing company is "reaping" profits on sales that top out at only 0.13% above cost. That is why jobs are being lost and companies are struggling.

Of course, it hasn't helped that organizations like Hebei Xin Gang Iron & Steel Group increased its production by a whopping eighty percent last year. That overproduction caused the price of the company's output to drop precipitously which, of course, hurt profits.

Crude steel output for all Chinese companies actually reached ninety million tons in 2011, which was an increase in total capacity of thirty million tons since 2005, a period of just six years.

Left unchecked and unregulated, the immense amount of overproduction has put this industry into "hard times," at least for now.

And, while that is certainly not good news for China and the many companies in its iron and steel industry, it does "open the door" for competing companies from other lands, such as Australia.

While the Chinese behemoth struggles to recover, its dominance of the iron and steel markets has ceased to exist. And that can only be viewed as good news for Australia's iron and steel producers, for companies from other Asian countries, as well.

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