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China's steel industry will continue to face overcapacity problems this year, and suffer similar financial pressures to 2012, as the sector struggles against rising raw material prices and weak demand.
The stark industry outlook came from Zhang Changfu, secretary-general of the China Iron and Steel Association, who revealed on Thursday that the country's major steel companies - which account for 80 percent of the country's total output - had an overall profit of 1.58 billion yuan ($254 million) in 2012, a 98.22 percent year-on-year drop on the previous year.
The latest industry figures emerged as four of the country's major listed steelmakers posted preliminary earnings estimates predicting hefty losses for 2012.
Angang Steel Co Ltd said it expected net losses for 2012 to widen from a year earlier, after steel prices fell on subdued global demand, meaning it is expecting losses of 4.16 billion yuan in 2012.
There also were bleak forecasts from Shandong Iron and Steel Co Ltd (3.57 billion yuan loss), Magang (Group) Holding Co Ltd (3.72 billion yuan to 3.95 billion yuan loss), and Beijing Shougang Co Ltd (300 million to 400 million yuan loss).
Speaking at an annual steel industry conference in Beijing, Zhang said: "Steel prices were at a low level for a long time last year because of the economic slowdown.
"But, once steel product prices rise, the imported iron ore prices will soar immediately, which has been the key reason for the drop in profits by China's steelmakers."
Imported iron ore prices increased by $44 a metric ton from $115 a ton in late December to $159 a ton in mid-January, which added 422 yuan to the cost for each ton of steel production.
However, the steel output and imported iron ore quantity have not increased during the same period, which suggests this round of the iron ore price rise was not caused by the demand-supply change, but market manipulation, said Zhang.
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