I. Overall Operation of National Large-Scale Industries

　　In June 2016, the year-on-year actual growth of added value of large-scale industries was 6.2%, an increase of 0.2 percentage points compared to May. From a month-on-month perspective, in June, the added value of large-scale industries increased by 0.47% compared to the previous month. From January to June, the year-on-year growth of added value of large-scale industries was 6.0%.

　　1. From January to June, the main business revenue of large-scale industrial enterprises reached 52.84 trillion yuan, a year-on-year increase of 3.1%; the main business cost was 45.33 trillion yuan, an increase of 3%;

　　From January to June, the main business revenue profit margin was 5.68%. For every 100 yuan of main business revenue in large-scale industrial enterprises, the cost was 85.79 yuan, the main business revenue per 100 yuan of assets was 108.3 yuan, the per capita main business revenue was 1.179 million yuan, the finished product inventory turnover days were 14.4 days, and the average collection period of accounts receivable was 38.1 days.

　　2. From January to June, the total profit of national large-scale industrial enterprises reached 3 trillion yuan, a year-on-year increase of 6.2%, with the growth rate falling by 0.2 percentage points compared to January-May.

　　3. At the end of June, the accounts receivable of large-scale industrial enterprises was 11.62 trillion yuan, a year-on-year increase of 8%; the finished product inventory was 3.70 trillion yuan, a decrease of 1.9%.

　　II. Production and Operation of Refractory Materials Industry from January to June 2016

　　1. Production of Refractory Materials

　　From January to June, the national refractory materials output was 10.5746 million tons, a year-on-year decrease of 5.71%. Among them, the dense shaped refractory products were 6.9763 million tons, a year-on-year decrease of 2.02%; the heat insulation refractory products were 0.2591 million tons, a year-on-year increase of 15.09%; the unshaped refractory products were 3.3392 million tons, a year-on-year decrease of 13.69%.

　　2. Import and Export Trade of Refractory Raw Materials

　　From January to June, the total import and export trade volume of refractory raw materials nationwide was US$1.377 billion, a decrease of 14.04% compared to the same period last year. Among them, the export trade volume was US$1.287 billion, a year-on-year decrease of 15.69%; the import trade volume was US$0.09 billion, a year-on-year increase of 18.68%.

　　The total export volume of refractory raw materials nationwide was 2.5067 million tons, a year-on-year decrease of 2.95%. Among them, the export volume of refractory raw materials was 1.716 million tons, a year-on-year decrease of 0.72%; the export volume of refractory products was 0.7907 million tons, a year-on-year decrease of 7.44%.

　　Export of Main Refractory Raw Materials

　　①The export volume of electrofused magnesia and sintered magnesia was 0.1568 million tons and 0.252 million tons respectively, with year-on-year increases of 9.98% and 1.99% respectively.

　　②The export volume of refractory alumina clay, brown corundum and white corundum was 0.4139 million tons, 0.285 million tons and 0.0898 million tons respectively, with year-on-year increases of -6.98%, 2.08% and 6.46% respectively.

　　③The export volume of graphite and silicon carbide was 0.0525 million tons and 0.1594 million tons respectively, with year-on-year decreases of 1.33% and 5.16% respectively.

　　Export of Refractory Products

　　①The export volume of basic refractory products was 0.411 million tons, a year-on-year increase of 1.16%.

　　②The export volume of aluminosilicate refractory products was 0.3223 million tons, a year-on-year decrease of 11.64%.

　　③The export volume of other refractory products was 0.0574 million tons, a year-on-year decrease of 31.03%.

　　3. Production and Export Operation Characteristics

　　Decrease in Refractory Material Output

　　From January to June, the national refractory material output decreased by 0.64 million tons compared to the same period last year, a year-on-year decrease of 5.71%.

　　Continuous Decline in the Average Export Price of Refractory Raw Materials.

　　From January to June, among the main refractory raw materials exported, the average export prices have decreased to varying degrees. The export volume and average export price of graphite, refractory clay and silicon carbide have continued to decline, with export volume and average export price decreasing by 1.33%, 6.98% and 5.16%, and 5.43%, 16.80% and 5.36% respectively; while the export volume of electrofused magnesia, sintered magnesia, brown corundum and white corundum has increased to varying degrees, but the average export price has decreased. The export volume increased by 9.98%, 1.99%, 2.08% and 6.46% respectively, while the average export price decreased by 10.39%, 12.09%, 3.34% and 13.02% respectively.

　　Except for the increase in basic products, the export volume of aluminosilicate products and other refractory products has decreased to varying degrees.

　　From January to June, the export volume of refractory products decreased by 7.74% year-on-year, and the comprehensive average export price decreased by 18.62%. Among them, the export volume of basic products increased by 1.16%, while the export volume of aluminosilicate refractory products and other refractory products decreased by 11.64% and 31.03% respectively;

　　The comprehensive average export price of refractory products decreased by 18.62%. Among them, the average export prices of basic products, aluminosilicate products and other refractory products decreased by 8.42%, 31.63% and 0.69% respectively.

　　From January to June, the import volume of refractory products was 0.91 million tons, a year-on-year increase of 8.20%. Among them, the import volume of basic products was 0.24 million tons, a year-on-year decrease of 31.86%; the import volume of aluminosilicate refractory products was 0.50 million tons, a year-on-year increase of 33.48%; the import volume of other refractory products was 0.17 million tons, a year-on-year increase of 47.76%.

　　The comprehensive average import price of refractory products increased by 53.42% year-on-year, and the average import prices of basic products, aluminosilicate refractory products and other refractory products increased by 0.82%, 50.94% and 64.08% respectively.

　　III. Production and Operation of Major Downstream Industries

　　Operation of the Steel Industry

　　1. Production and Operation of China's Steel Industry

　　From January to June, the national crude steel output was 400 million tons, a year-on-year decrease of 1.05%, with the decrease narrowing by 0.2 percentage points year-on-year; the steel output was 560 million tons, an increase of 1.11%, with the growth rate falling by 0.9 percentage points year-on-year.

　　2. Production of the World Steel Industry

　　From January to June, the global crude steel output was 795 million tons, a year-on-year decrease of 1.9%. Except for the Commonwealth of Independent States, the United Kingdom and India, which increased by 0.6%, 0.2% and 2.7% respectively, all other countries experienced decreases to varying degrees.

　　From January to June, among the top 10 countries in global crude steel output, India, the United States, Turkey and Ukraine saw an increase in output, while other countries saw a decrease. China accounted for 59.44% of the top 10 crude steel output and 50.3% of the global crude steel output.

　　Production and Operation of the Building Materials Industry

　　From January to June, the national cement production was 1.109 billion tons, a year-on-year increase of 3.2%, compared with a decrease of 5.3% in the same period last year; the output of flat glass was 384 million weight boxes, an increase of 1%, compared with a decrease of 4.2% in the same period last year.

　　Production and Operation Status of Non-ferrous Metal Industry

　　From January to June, the national output of ten non-ferrous metals was 25.12 million tons, a year-on-year increase of 0.1%, with a year-on-year decline of 9.2 percentage points in growth rate. Among them, copper output was 4.03 million tons, an increase of 7.6%, a decrease of 1.8 percentage points; electrolytic aluminum output was 15.32 million tons, a decrease of 1.9%, compared with an increase of 11.7% in the same period last year; lead output was 1.97 million tons, an increase of 2.8%, compared with a decrease of 3.5% in the same period last year; zinc output was 3.03 million tons, a decrease of 0.9%, compared with an increase of 12.8% in the same period last year. Alumina output was 28.63 million tons, a decrease of 1.6%, compared with an increase of 13.1% in the same period last year.

　　IV. Some Views on the Operating Trend of Major Downstream Industries

　　1. Steel Industry

　　In the first half of this year, the operating conditions of steel enterprises have generally improved, reversing the industry-wide losses. In addition to the joint efforts of all employees in the steel industry, the main factors are the increase in steel prices and the decrease in the prices of major raw and auxiliary materials.

　　Steel prices have rebounded from their bottom, but are still operating at a low level; although crude steel production has decreased, the overall supply still exceeds demand. Therefore, low-level fluctuations in steel prices will be the norm.

　　Since 2012, domestic steel prices have been falling. At the end of 2015, the comprehensive steel price index fell to 54.48 points, a decrease of 34.43% from the end of 2014.

　　Since the beginning of this year, steel prices have rebounded. By the end of April, the comprehensive steel price index rose to 84.66 points, exceeding the same period last year for the first time. In particular, in March and April, the speed and magnitude of steel price increases exceeded expectations. However, after May, steel prices fell rapidly. By the end of June, the comprehensive steel price index fell to 67.83 points, a decrease of 19.8% from the end of April.

　　In terms of crude steel output, from January to February, the national average daily crude steel output was 2.0178 million tons. In March and April, the daily crude steel output surged to 2.279 million tons and 2.314 million tons, respectively. In June, the daily crude steel output reached 2.3175 million tons, setting a new historical high.

　　Therefore, the increase in product prices is accompanied by the release of production capacity, and the release of production capacity is accompanied by a decrease in product prices. This is the result of overcapacity inevitably leading to low-level hovering of product prices.

　　The decline in the price of raw and auxiliary materials is also one of the main factors contributing to the improvement of operating conditions.

　　From January to June, the purchase prices of major raw materials and fuels used in steel smelting have decreased significantly. In addition to the purchase prices of imported iron ore and metallurgical coke, which decreased by 13% and 16.94%, respectively, other prices decreased by about 20% year-on-year.

　　Year-on-year decrease in the purchase cost of major raw and auxiliary materials

　　Variety

　　Unit

　　January-June 2016

　　Same period last year

　　Year-on-year increase

　　Year-on-year growth rate (%)

　　Domestic iron

　　Concentrate

　　Yuan/ton

　　413.39

　　504.13

　　-90.74

　　-18.00

　　Imported iron ore

　　Yuan/ton

　　404.73

　　465.19

　　-60.46

　　-13.00

　　Coking coal

　　Yuan/ton

　　620.34

　　772.44

　　-152.10

　　-19.69

　　Injection coal

　　Yuan/ton

　　511.64

　　656.56

　　-144.92

　　-22.07

　　Metallurgical coke

　　Yuan/ton

　　779.68

　　938.65

　　-158.97

　　-16.94

　　Scrap steel

　　Yuan/ton

　　1183.07

　　1478.74

　　-295.67

　　-19.99

　　Therefore, the significant decrease in the procurement cost of steel enterprises in the first half of the year is also one of the main factors contributing to the improvement of economic benefits.

　　2. Building Materials Industry

　　In the first half of the year, the output of cement and flat glass increased slightly, by 3.2% and 1.0%, respectively. In June, cement prices fell 5.6% year-on-year; flat glass prices rose 1% year-on-year.

　　According to data from Digital Cement Network, the cement industry achieved sales revenue of 304.7 billion yuan from January to May, a year-on-year decrease of 5.54%; and profit of 4.49 billion yuan, a year-on-year decrease of 52%. However, the profit in May alone reached 4.64 billion yuan, which is 150 million yuan higher than the total profit from January to May. It can be seen that the profit level from January to April was almost at the break-even point. In June, cement prices fell 5.6% year-on-year, making the business very difficult.

　　3. The operating conditions of the non-ferrous metals industry are better than other downstream industries.

　　From January to May, the national non-ferrous metals industry achieved main business income of 2.21 trillion yuan and profit of 68.74 billion yuan, with year-on-year increases of 2.6% and 8.6%, respectively. Among them, the aluminum smelting industry achieved revenue of 165.78 billion yuan, a year-on-year decrease of 6.0%, and profit of 2.42 billion yuan, a significant year-on-year increase of 184.7%, turning losses into profits. Losses of loss-making enterprises were 17.6 billion yuan, a year-on-year decrease of 11.8%; among them, losses of loss-making enterprises in the aluminum industry were 4.05 billion yuan, a year-on-year reduction of 22.4%.

　　However, the operating quality is still low, with the sales revenue profit margin of the aluminum smelting industry being only 1.46%.

　　Therefore, under the premise of serious overcapacity, in the initial stage of market economy, the market order is not very standardized, and the self-discipline of enterprises is not high, it will inevitably lead to disorderly market competition, low-level operation of product prices, and fluctuations in costs will be the norm, and there will be no fundamental improvement in the short term.

　　V. Operating Characteristics and Existing Problems of Refractory Materials Industry

　　1. Operating characteristics of the refractory materials industry

　　In the first half of this year, the production and operation of the national refractory materials industry continued the downward trend of last year, continuing to show a "six decreases and one increase" operating trend, with a passive situation of a comprehensive decline in output, sales revenue, profit, export volume, trade volume, and average export price. Only accounts receivable increased, but the increase narrowed.

　　From January to June, affected by market demand, compared with the same period last year, the national refractory materials output was 10.5746 million tons, a year-on-year decrease of 5.71%, with the decline narrowing by 6.46 percentage points.

　　A survey of 60 key refractory material enterprises showed that refractory material output, sales revenue, and profits decreased by 6.32%, 10.30%, and 31.68%, respectively.

　　From the perspective of the operation of key enterprises, the operating quality has significantly decreased, showing a passive situation where the decline in profits is greater than the decline in sales revenue, and the decline in sales revenue is greater than the decline in output.

　　Key enterprises achieved sales revenue of 15.614 billion yuan, a year-on-year decrease of 10.30%; profits reached 475 million yuan, a significant year-on-year decrease of 31.68%; 21.38 percentage points higher than the decrease in sales revenue.

　　The main business revenue profit margin was 3.04%, a year-on-year decrease of 1.66 percentage points. This is 2.64 percentage points lower than the 5.86% main business revenue profit margin of national industrial enterprises.

　　Among the 60 key enterprises, 45 were profitable, accounting for 75%; the total profit was 668 million yuan. 15 enterprises were loss-making, accounting for 25%, with total losses of 192 million yuan.

　　The total accounts receivable of key enterprises at the end of June was 14.79 billion yuan, a year-on-year increase of 2.19%, with the growth rate decreasing by 7.35 percentage points compared to the end of 2015.

　　2. Several Issues That Production Enterprises Should Pay Attention To

　　Funding issues remain the primary issue affecting the operational safety of enterprises.

　　By the end of June, the growth rate of accounts receivable of key enterprises has narrowed, decreasing by 7.35 percentage points compared to the end of 2015, which is a good achievement and the result of the high attention and unremitting efforts of production enterprises on funding issues; however, it still increased by 2.19% year-on-year.

　　Among key enterprises, 9 enterprises, accounting for 15%, saw a year-on-year decrease of more than 20% in accounts receivable, while 11 enterprises, accounting for 18.3%, saw a year-on-year increase of 20%. In particular, several enterprises saw a year-on-year increase of more than 100% in accounts receivable.

　　Therefore, refractory material production enterprises should further strengthen their awareness of financial risks, persistently strengthen accounts receivable collection work, and constantly prevent operational risks.

　　The market demand for refractory materials and their main downstream industries is declining, and the marginal operation of production enterprises has become the norm; this should be treated rationally.

　　After more than a decade of rapid development, the industry has reached its peak. The decline in market demand is inevitable and conforms to the laws of economic development. Therefore, the decline in market demand is irreversible and will not be easily improved in the short term. Coupled with serious overcapacity, this will inevitably lead to market disorder, low-level market price fluctuations, and marginal operation of enterprises, which will be difficult to change in the short term.

　　Therefore, production enterprises should have a clear understanding of the current economic situation and market demand, and treat it rationally. They should adapt to the market through technological innovation and structural adjustment, rather than letting the market adapt to the enterprise, so that they can stand firm and develop steadily in a complex and changing market environment.

　　3. The Significant Decrease in the Average Export Price of Major Refractory Raw Materials and Products Should Be Highly Valued by Exporting Enterprises

　　In the first half of the year, among the 14 refractory raw materials and product varieties queried by the association from the General Administration of Customs, except for bentonite and three stones, the average export prices of the remaining 12 export varieties have decreased to varying degrees. Among them:

　　Among refractory raw materials, the major export varieties, including refractory alumina clay, fused magnesia, sintered magnesia, white fused alumina, and silicon carbide, have experienced significant declines, with year-on-year decreases of 16.8%, 10.39%, 12.09%, 13.02%, and 5.36%, respectively.

　　Among the three categories of refractory products, the average export prices of alkaline refractory products, aluminosilicate refractory products, and other refractory products have all decreased, with year-on-year decreases of 8.42%, 31.63%, and 0.69%, respectively.

　　Although the gradual reduction in market demand may lead to a decline in exports, the decline in export prices is mainly the result of disorderly market competition, which should be highly valued by exporting enterprises.

 

 

　 　4. Strengthen Cost Management and Improve Operating Quality

　　Since the beginning of this year, the operating quality of key refractory material enterprises has significantly decreased, with an average sales profit margin of only 3.04%, a year-on-year decrease of 1.66 percentage points. The main reason for the decline in profit margin is the disorderly market order and the reduction in sales prices. However, weak enterprise management and serious losses and waste are also important factors contributing to the low operating quality.

　　Therefore, refractory material production enterprises should strengthen their cost awareness, tap internal potential, maximize control over product manufacturing costs, and expand profit margins. Strictly control the three expenses of enterprise finance, management, and sales, strive to reduce procurement costs, truly follow the requirements of tightening belts, carefully calculate, strictly manage, and do everything possible to reduce various expenses, and make every effort to control production and manufacturing costs to the lowest level to ensure that the operating quality of enterprises improves.

 

Source: Luoyang Kechuang New Materials Co., Ltd.: https://www.kcnh.com/