How to deal with the era of high steel prices
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How to deal with the era of high steel prices

Zhengzhou : China | May 05, 2012 at 7:44 PM PDT
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How to deal with the era of high steel prices

Iron and steel industry is basic industry as China entering into the era of heavy and chemical industries, their prices can be passed to the downstream industry. In order to ensure the iron and steel enterprises escape from losses, downstream industries like automotive, marine, appliances, construction had to pay the bill undoubtedly This year's iron ore prices, will inevitably lead to overall deterioration of the situation of production of the machinery industry. The face of the era of high steel prices, the machinery industry go from here? Machinery industry under the heaviest pressure in the high steel prices

The statistics show that in 2006, China produced 466.85 million tons of steel, minus exports of 43.01 million tons of steel, the actual production of 423.84 million tons of steel; the automotive industry, steel 17 million tons, 566 million tons of steel for the shipbuilding industry, appliance industry 500 million tons of steel, machinery and industrial steel 57 million tons, accounting for 13.4% of the total domestic steel production is the real steel users.

Prices iron and steel enterprises, machinery enterprises is difficult to price downward conduction. The machinery industry is a highly market-oriented industry is highly competitive, if the upward pressure on prices downward conduction is likely to lose customers. Even if product prices increase, the rates are small, to ensure that sales will not cause a decline in revenues and profits.

Machinery products, steel typically accounts for 20% of the cost of heavy equipment, compared with 30%, more than 50% part of forging casting products, power generation equipment 60%, part of the mining machinery, port machinery, engineering machinery, steel costs can even account for 70 % or more. Steel prices 10% will be machinery industry to produce a very large impact. Machinery industry in 2007 the main business income of a profit margin of only 6.19%, even 20% of the average cost of steel, but also squeezed the profits of two percentage points, forging casting heat treatment business or even five percent of the profit must be squeezed out.

Heavy machinery industry, especially to strengthen the industrial union

The long term, medium-sized machinery enterprises should strengthen the vertical integration of iron and steel enterprises, mutual cross-shareholdings, to share the risk of prices of steel, heavy machinery industry is especially true.

Heavy machinery industry is characterized by excessive supply and delivery mostly in 4 months and even years, timber and basic steel and other non-metallic material less than 0.5% of the weight of the product. Supply contracts already signed, the price can not be re-adjusted, raw material prices to the increase in costs can only be borne by the enterprises. In fact, the heavy machinery industry products, many for the steel industry, iron and steel enterprises, both raw material suppliers is also a product user side, should share some of the raw material prices and the losses caused by heavy machinery enterprises.

Machinery and equipment manufacturing labor, capital and technology intensive industries, its products are relatively complex and technical content are higher, relative to capital, labor and other production factors, the role of technological progress of the industry is more significant.

At the same time, the machinery enterprises should speed up the transformation of economic development, increase R & D investment, enhance independent innovation capability to develop high value-added products.

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nicole006py is based in Beijing, Beijing, China, and is a Reporter for Allvoices.
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