The steel market is waiting for a breakthrough
Period ago, the national steel market showed a wave of falling prices.Market monitoring data show that by August 28 this year, the national composite index of steel prices was 144.7, down 6.5% from the previous high (July 1, 2019), and the long material price index was down 9.7%.The closing price of main rebar contract fell nearly 20 percent (-19.2 percent) in the same period.
Analysis of the early fall in steel prices: mainly the escalation of the trade war between China and the United States, the mutual imposition of tariffs;Strong growth in national steel production, production limit expectations failed;At the same time, the market demand in the off-season, and steel prices themselves have technical callback requirements.At present, the above factors seem to be empty, steel market bottom recovery, positive factors gradually gathered, seems to be waiting for a new breakthrough.
1.China’s economic structure is undergoing healthy adjustment, with domestic demand becoming the primary engine
For a period of time, in the global economic structure, the United States, as the most important consumer market, imported a large number of Chinese goods, resulting in a huge trade deficit of American goods.China, the world’s largest holder of foreign exchange reserves, has been buying up U.S. debt to meet the United States’ continuing funding needs.The structure of the economy is itself skewed and unbalanced, because the us is saddled with debt that is unsustainable.
As a result, China began to shift its economic structure from an export-oriented economy to an inward-oriented one several years ago (mercantilism gave way to consumerism), gradually making domestic demand the main driver of China’s economic growth.According to statistics, in 2018, the total retail sales of consumer goods reached 38.1 trillion yuan, an increase of 9%. Consumption has been the primary driving force of economic growth (GDP) for five consecutive years, contributing 76.2% to economic growth.That momentum picked up in the first half of this year, when consumption accounted for 78.5 percent of economic growth.
It should be said that we have initially completed the gradual transformation of the engine of economic growth, and is still in the process of consolidation and strengthening, so that China’s steel consumption has a solid basis for domestic demand, export demand (including indirect export) dependence is greatly reduced.It can be predicted that China’s steel production based on domestic demand will continue for a long time.
2. counter – cyclical adjustment to external pressure has been enhanced, steel demand continues to be strong
In order to cope with and defuse trump’s “extreme pressure”, the state council recently held an executive meeting and decided to step up counter-cyclical adjustment to ensure stability.Three things are important. One is a more aggressive fiscal policy.According to the needs of major local projects, some new quotas for special bonds for next year will be allocated ahead of schedule to ensure that they can be used effectively early next year, and the scope of their use will be expanded.Second, we continued to implement a prudent monetary policy and made anticipatory adjustments and fine-tuning at the appropriate time.We need to accelerate the implementation of measures to lower the level of real interest rates, and promptly use policy tools such as general and targeted RRR cuts.Third, stable investment.We need to focus on strengthening weak areas, improving people’s well-being, and increasing sustainability, and further expand effective investment.Special debt can be used as capital for projects, with a focus on major infrastructure sectors.Special bonds of local governments within this year’s quota should be fully issued by the end of September and allocated to projects by the end of October, so as to urge local governments to form physical workload as soon as possible.
Some people believe that the above measures, only the state council ahead of the release of next year’s special debt quota, is expected to leverage trillion yuan of construction funds.As these funds are mainly used for infrastructure projects such as transportation, power grid, gas network, water conservancy and environmental protection, they will continue to generate strong demand for steel.
3. the china-us trade war may be “stopped” with positive results of negotiations, and the steel market is unexpectedly positive
The escalating trade war between China and the us provoked by US President Donald trump will not only harm China’s economic growth, but also weigh heavily on the us economy and even bring disastrous consequences to the world economy.There is a growing view that the us economy will fall into recession in 2020 because of the escalating trade war between China and the us.The imf reckons the global economy will suffer a loss of 0.8 percentage points next year.Combined with the upcoming us election, the increasing pressure of the us economic growth rate and the downturn of the stock and bond market, as well as the rising opposition to the trade war from the domestic industry and ordinary consumers, will make the us trump administration worried about the vicious, long-term and spillover prospect of the trade war.So far, china-us trade talks have not stopped.
On the other hand, as noted above, China has initially shifted from an export-led economy to a consumption-led one.With the consolidation and further expansion of this achievement, the marginal threat effect of trump’s trade war stick on China’s economy is becoming smaller and smaller.Not only that, but after imposing high tariffs on almost all Chinese imports, Mr Trump seems to have little ammunition left (unless the trade war spreads to more areas, and its disastrous consequences are harder to predict), while China still holds the trump.Therefore, in my opinion, the trade war between China and the United States is likely to take a temporary “pause” in order to achieve positive negotiations.
If this happens, and if the us-china trade talks end in a positive outcome, it will be a great boon for the Chinese steel market, which is waiting, and even for global commodity markets.
4.Part of the industrial chain moving out of China will also generate “additional” demand for Chinese steel.
The extreme pressure of trump’s trade war in the us, among other factors, will of course shift some of the industry chain away from China.It must be pointed out that this shift of manufacturing capacity must be conditional on the advance or simultaneous shift of corresponding infrastructure such as electricity, water supply, transportation, warehousing and environmental protection.Otherwise, no electricity, water shortage, no great logistics capacity for protection, the so-called industrial chain is empty talk.
Thus it can be seen that even if the industrial chain of a certain scale moves out of China, it will be accompanied by the corresponding infrastructure construction in the country.This kind of “re-built” infrastructure is bound to generate “additional” steel demand, especially the demand for construction steel and construction equipment.India recently announced plans to spend $1.4 trillion (in Indian currency) over the next five years on infrastructure.At present, the world’s steel capacity and construction equipment capacity is mainly concentrated in China, and Chinese products have more competitive advantages today, a large part of these construction steel and construction equipment, to buy from China.In this way, China’s steel demand will also have an “additional” increase in a certain period, forming a positive external demand lasting for several years to more than a decade.
5. China’s strong growth in steel production may be a spent force
For several years in a row, China’s steel statistical output has been growing by a large margin, this year, the steel output growth rate even reached 20%, and the author before the output growth rate of “the end of a spent force” point of view.
It should be said that after a long period of continued growth and release of advanced production capacity, coupled with the continuous improvement of the base of comparison, the growth rate of China’s steel production should also fall back, I am afraid that there is really a “spent force” situation.In July this year, the daily output growth rate of crude steel fell back, possibly showing this trend.Of course, what is said here is only a decline in growth, not an absolute decline.If this situation can be maintained, the future steel market supply pressure is bound to be reduced.
Thus it can be seen that the five factors above build the dominant aspect of China’s steel market in the future. Overall, the steel market is more positive than negative.As a number of factors have come on stage, steel market prices may be a new breakthrough.