Mysteel: 2019 domestic steel supply and demand structure change brief analysis
Experienced a few years ago the supply side reform after the baptism, the domestic steel industry ushered in the great changes: environmental limit production normalized, speed up industry merger and reorganization, backward production capacity has been out, steel prices also achieved by before falling to modest now, steel mills to improve profitability, the optimization of product structure, the industry gradually towards the direction of the benign and sustainable development.
But at the same time, there are many problems that need to be solved: on the one hand, the current situation of excess steel capacity still exists; on the other hand, the lack of iron ore pricing power and over-dependence on imports make the domestic steel industry always passive in the international trade market.
Since this year, the domestic economy is facing greater downward pressure, under the background of decline in economic growth, on the one hand, the government to implement a proactive fiscal policy and loose monetary policy for infrastructure investments, policy infrastructure repair short board effect is continually improving, combined with the real estate market recovery, construction steel demand is rising, but at the same time, the manufacturing recession in the steel industry supply and consumption structure changed greatly, and also the high steel prices reverse it restricts the development of related industry.
By comparing the changes of supply and demand, the author briefly expounds the changes of domestic steel consumption structure this year.
First，Domestic steel consumption structure
The main downstream of steel is construction, machinery and other industries, among which construction industry accounts for the largest proportion, accounting for about 55% of the total steel consumption.Steel used in construction industry mainly includes housing engineering and infrastructure engineering. Housing engineering construction can be divided into residential housing, commercial and service housing and office housing.Among them, residential housing accounted for the largest proportion, more than 65 percent.Infrastructure projects mainly include railway construction, transportation construction (highway, urban rail, airport port, etc.) and energy construction (petrochemical, electric power, etc.).The steel used in industrial industry is mainly concentrated in the four major industries of machinery, automobile, ship and light industry and household appliances.
Second, the supply side
1, steel enterprises to improve the enthusiasm of production of crude steel output suddenly increased
Since 2015, the output of crude steel in China has been increasing step by step.According to the China iron and steel association, China’s crude steel output from January to July 2019 was 576,787 million tons, up 9.4 percent year-on-year, much higher than the 6.6 percent growth rate in the same period last year.However, due to the increase in steel inventory and social inventory digestion pressure, steel mills began to take the initiative to reduce production to go to the warehouse, crude steel output growth rate in July was 4.98%, growth rate has obvious signs of decline.
On the one hand, the increase in crude steel output is reflected in the shift of steel industry demand to normal production capacity after the elimination of backward production capacity such as floor steel, and under the stimulation of improved benefits, the enthusiasm of steel enterprises in production is also significantly improved. On the other hand, the growth of steel demand is the source power of crude steel output growth.
2. Rapid growth of rebar output and wire production
Subdivision variety, construction steel output growth performance is the most eye-catching.According to the data of China steel association, from January to July 2019, China’s rebar output was 142.292 million tons, with a year-on-year growth of 20.7 percent, accounting for 24.67 percent of China’s crude steel output in the same period.
On the wire side, production growth slowed in July after hitting a record high in June.According to cisa data, from January to July 2019, China’s wire output was 91.234 million tons, with a year-on-year growth of 12.9%, accounting for 15.82% of China’s crude steel output in the same period. In the same period last year, wire production accounted for 15.23% of crude steel output, accounting for a slight increase.
3. Hot coil production increased slightly and the proportion of cold rolling decreased
Hot rolled coil, production growth rate compared with last year although improved, but the growth rate is significantly lower than construction steel.According to Mysteel data, from January to July 2019, China’s hot coil production was 111,104,000 tons, up 2.9 percent year-on-year, accounting for 19.26 percent of China’s crude steel production in the same period. In the same period last year, hot coil production accounted for 20.47 percent of crude steel production, accounting for a decrease.
As a downstream product of hot coil, cold-rolled sheet is widely used in automobile and household appliance manufacturing, and its increase or decrease can reflect the rise and fall of domestic manufacturing industry to some extent.
Domestic cold-rolled sheet production growth rate in February this year began to appear cliff-like decline, and consecutive months of growth rate decreased, June month-on-month production dropped significantly.According to the data of China steel association, from January to July 2019, the output of cold-rolled sheet steel in China was 18.692,000 tons, with a year-on-year growth of 2.5%, accounting for 3.24% of the crude steel output in China during the same period. During the same period last year, the output of wire material accounted for 3.37% of the crude steel output, with a decrease in the proportion.
4. The growth rate of medium and thick plate output can still show a declining trend in the third quarter
Medium and thick plate, the first half of the year compared with the same period of last year’s obvious growth, but in late June began to decline significantly.According to Mysteel data, up to September 9, 2019, China’s plate production is 44.715 million tons, a year-on-year growth of 3.81%, the growth rate is slightly higher than hot coil, but much lower than construction steel, from the latest production data and cyclical change rule, the fourth quarter plate production may shrink significantly.
Third, the demand side
1. The steady growth of investment in fixed assets and the remarkable effect of strengthening weak links in infrastructure
Urban fixed asset investment includes railway, water conservancy, highway, airport, power grid and other infrastructure investment. As an important reference index for the development of national economy, the total amount of urban fixed asset investment in China has been growing year by year in recent years, but the growth rate has been decreasing year by year.
According to data from the National Bureau of Statistics, from January to July 2019, China’s urban fixed asset investment was 34.9 trillion yuan, with a year-on-year growth of 5.7%, the growth rate was the same as that in the second half of last year. It can be seen that although the growth rate declined, from another perspective, there was still a large increase in the demand for steel used in infrastructure.
2, housing is not speculation real estate is still strong
In recent years, the real estate development is “struggling forward” under the high pressure of policies, but even so, the performance of real estate data is quite eye-catching, the new construction area of real estate and the investment in urban real estate development have maintained a high-speed growth trend.
According to the data of the National Bureau of Statistics, the newly started area of real estate nationwide was in a negative growth trend in 2015. However, since the beginning of 2016, the growth rate has increased sharply, and then it shows a trend of rapid growth year by year. As of January to July 2019, the newly started area of real estate nationwide has increased by 9.5% year-on-year.The investment in urban real estate development is even more prominent, with the growth rate accelerating year by year and the increment enlarging year by year. By January to July 2019, the investment in urban real estate development has increased by 10.6% year-on-year.Real estate investment growth faster than expected is also one of the most important factors in the growth of construction steel this year.
3, automobile production and sales drag thin plate consumption
This year, the domestic auto market can be described as “bleak”. Since the beginning of the year, the monthly growth rate of auto production and sales has been negative.According to statistics, as of January to July 2019, China’s total automobile production is about 1.377 million, down 13.43 percent year-on-year.As one of the main downstream of cold rolled coil, the sharp decline in automobile production is undoubtedly a blow to the consumption of cold rolled coil.
4. Shipbuilding completion increased slightly and new orders received by half
In terms of new ship orders, up to January to July 2019, the carrying capacity of new ship orders in China reached 14.77 million deadweight tons, 38.9% lower than that of the same period last year. Although new orders in recent months have increased, the decline has not widened, but the overall situation is still not optimistic.
Shipbuilding completions, as of July 1-2019, China shipbuilding completions load 22.11 million tons a year, compared with the same period last year growth of 1.4%, but since may this year, significantly decline in shipbuilding completions, and because the new order intake shrank obviously, is expected in the second half of China’s shipbuilding completions or will continue to shrink, shipbuilding steel demand will have a greater downward pressure.
5, the manufacturing industry slump processing machinery met Waterloo
Since this year, China’s economy is facing greater downward pressure, the manufacturing industry is the first to bear the brunt of the official manufacturing PMI index released this year from may this year for four consecutive months below the line of expansion and contraction, in which the machining sector manufacturing industry declined significantly, its steel demand also showed a significant contraction.
According to the National Bureau of Statistics, the output of China’s metal rolling equipment was 322,113 tons from January to July 2019, down 13.73 percent from the same period last year.As for metal cutting machine tools, up to January to July 2019, the output of China’s metal cutting machine tools was 278,967, down 11.74% year-on-year.Both output data from February and march this year began to show a sharp decline, visible related metal processing and other manufacturing industries have a serious decline.
The last ，Summary and prospect
Overall, this year’s domestic steel supply pattern presents a “long strong plate weak” situation, in other words, the steel consumption structure presents a rebar, high-speed steel infrastructure steel is stronger than the plate based manufacturing steel.”Long strong plate weak” is mainly reflected in long wood output and demand growth than flat wood, price amplitude is greater than flat wood, and in the economic downturn under the pressure of differentiation is more obvious.
In the face of declining economic growth, steady growth is of course the top priority.Unilateralism popular in the field of international trade, export growth is weak, and further consumption growth lack of motivation, on the policy guidance, anchored to the growth of infrastructure investment is still stable, so this year steel weight of the infrastructure and real estate sector increased significantly, and manufacturing industry affected by the decline in exports and consumption growth, the growth of manufacturing steel is reduced.
For the next four quarters, the author thinks that, in the short term, the economy is still difficult to recover, as a proactive fiscal policy and loose monetary policy gradually introduced, infrastructure and real estate sector in steel demand will continue to play a primary contribution, while manufacturing due to funding and policy bias, the fourth quarter is expected to rebound to a certain extent, but for the overall pattern of supply and demand, “long strong plate weak” the situation is still difficult to change.