In a market economy, the most important factor affecting commodity prices is often not cost but supply and demand. When supply exceeds demand, even if the commodity's own cost is high, the lack of demand often forces sellers to cut prices or even sell at a loss; when supply falls short of demand, even if the commodity's own cost is low, it can often sell at "sky-high" prices several or even dozens of times the cost. For commodity producers, when the goods they supply are in a state of oversupply, enterprises may face declining profits or even losses; when the goods they supply are in short supply, corporate profits may grow substantially. By analogy, an industry with overcapacity, overproduction, and oversupply of products will inevitably struggle to seize the initiative in market transactions, lack bargaining power, find it difficult to secure profits, and may even fall into losses. Therefore, in a sense, a low-profit or loss-making industry is not necessarily an industry with overcapacity, but an industry with overcapacity can hardly escape the outcome of declining profits or even losses.

　　Looking back at the development of China's steel industry in recent years, it can be seen that along with the rapid growth of China's steel output, continuous improvement of technical levels, and increasingly complete product varieties, the profitability of the steel industry has been deteriorating. Since 2003, as crude steel output continued to grow, the steel industry's sales profit margin kept declining, especially accelerating after 2008, falling to 1.73% by 2012. In the first ten months of 2013, although the steel industry's profit margin rebounded somewhat, it was only 1.95%. After 2008, the steel price index also showed a fluctuating downward trend, basically falling back to the 1994 level by October 2013. More output, lower prices, thinner profits—this seems to have become an intractable problem plaguing the entire steel industry since 2008.

　　Moreover, there is a peculiar phenomenon in the steel industry: key large and medium-sized enterprises that are industry leaders and should be the most competitive actually have lower profitability than the industry average. Key large and medium-sized enterprises have significantly higher crude steel output than non-key small and medium-sized enterprises, but high output has not guaranteed high profits. Since 2008, the sales profit margin of key large and medium-sized enterprises in the steel industry has been below the industry average, falling to a historic low of 0.04% in 2012, with profit per ton of steel only 2.6 yuan (CISA data). In the first ten months of 2013, the profit per ton of steel for key large and medium-sized steel enterprises even dropped to 0.84 yuan, less than the price of a bottle of mineral water.

　　Compared with other small and medium-sized enterprises in the industry, key large and medium-sized enterprises have obvious advantages in capital strength, capacity scale, equipment and technology levels. Some enterprises have gained new profit growth points by developing non-steel businesses (for example, non-steel businesses such as exhibition services and catering services under Guangzhou Iron and Steel account for more than 50% of total business, and Wuhan Iron and Steel plans to invest 39 billion yuan during the "12th Five-Year Plan" period to develop pig farming and other non-steel businesses). Most are major local taxpayers and can obtain government support in land, resources, taxation, and even sales channels (for example, in July 2012, the Anyang Municipal Government of Henan Province specially organized a production-demand matching meeting for Anyang Iron and Steel Group, assisting the enterprise in signing purchase and sales contracts with 32 customers). Some enterprises also receive huge direct financial subsidies from local governments. Logically, they should be the main force driving up industry profitability, but the facts are otherwise: key large and medium-sized enterprises have instead become the drag lowering the overall profitability of the steel industry.

　　In summary, the significant decline in overall profitability of the steel industry in recent years, especially the deteriorating profit levels of key large and medium-sized enterprises, is an indisputable fact. If a few or a dozen enterprises saw weakened profitability, it might be attributed to various individual factors such as poor management, inadequate cost control, or uncompetitive products. But when the entire industry's profitability declines, and even the largest and strongest nearly 100 large and medium-sized enterprises see the fastest decline in profitability, it can only indicate that the entire industry has a systemic problem.