The weather is getting hotter, it is easy to have a real impact on downstream demand, and the price at the beginning of the third quarter has included more market expectations, if the demand is falsified in September and October, whether it is flat or lower than expected, it will cause the price to fall. The author believes that the current market is in the “strong expectations” and “weak reality” game, the third quarter steel prices are facing more pressure than power, steel prices or high fall, but the overall still have support.
Steel supply was basically stable in the second half of the year
There may be a small increase in the third quarter
Recently, the market has raised crude steel production capacity flat control, and there is even news that it will reduce crude steel production, and it is temporarily treated with flat control before the introduction of official documents. Data from the National Bureau of Statistics show that from January to May this year, China’s crude steel output was 444.63 million tons, up 1.6% year on year; Pig iron production was 374.74 million tons, up 3.2% year on year; Steel production was 557.06 million tons, an increase of 3.2%. From the cumulative data of the first five months, the year-on-year increase is not large, and the steel mill can achieve the goal of leveling the year as long as it maintains stable production in the second half of the year.
Downward pressure on the economy will remain this year. In this case, the author believes that the intensity of administrative intervention will be greatly reduced, as long as the second half of the crude steel production does not exceed the expected growth, the dominant power of production regulation will still be controlled by the market. Even if there is a reduction in crude steel production, the author believes that the probability of appearing in the environmental protection season, that is, November and December is greater, and the third quarter will basically not appear.
There is a certain pressure to increase production of steel in the third quarter. According to statistics, as of the week of July 7 (July 1-7), the profit margin of 247 steel mills in the country was 63.64%, which expanded nearly twice in the past two months. Due to the large decline in raw material prices and low raw material costs, steel mills have a stronger enthusiasm to resume production after the rebound in steel prices. The low level of steel inventory this year, especially the total inventory level of rebar is significantly lower than that of 2020-2022, which is only equivalent to the level of the same period in 2019, bringing the power to increase production to steel mills. Therefore, the author believes that the steel supply side of the second half of the year remains basically stable, but the third quarter or a small increase in production.
“Steel demand” pressure remained in the third quarter
According to statistics, from June 30 to July 6, the apparent demand for rebar was 2,693,300 tons, the apparent demand for hot-rolled coil was 2,954,000 tons, and the apparent demand for rebar and hot-rolled coil was lower than the same period in previous years. From the seasonal characteristics, the high temperature and rain in summer can easily lead to a slowdown in the construction of the site, affecting the demand for steel, and then there is a situation in the summer when the steel inventory is turned from inventory to inventory, and this year is especially bad. Recently, weather agencies in many countries issued El Nino warnings. On June 15, the China Meteorological Administration (CMA) issued this year’s first weather forecast for high temperatures and heat stroke, 13 days earlier than in previous years. Since June 13, many places in the north have seen high temperatures above 37 degrees Celsius, while local temperatures in northwest China have broken through the 40 degree mark. For our country, El Nino is easy to lead to an increase in rainfall in the south and a decrease in rainfall in the north, resulting in a situation of waterlogging in the south and drought in the north. Such climate characteristics will further increase the difficulty of downstream construction, resulting in the contraction of steel demand.
From the perspective of the real estate market, in the first five months of this year, in addition to the completion link to maintain a double-digit growth rate, the real estate funds in place, the start and construction links are running in the negative range, and even some data have expanded. From the cumulative data from January to May, it is difficult to have a significant improvement in the real estate market in the third quarter, the impact of weather factors, the slowdown of construction progress or exacerbate the decline in construction steel demand.
Macro expectations for good steel prices are still supported
Another important logic that dominates the trend of steel prices in the short and medium term is macro factors.
Overseas markets are mostly focused on the Fed’s monetary policy. Although the Fed rate hike has come to an end, but affected by the liquidity crunch, overseas economic repair cycle is longer. The domestic economy will still lead the global recovery. Among them, there is still room for domestic interest rate cuts and reserve requirements, and in the case of the continuation of the weak pattern of real estate, China’s fiscal policy is expected to further exert force. The global economy is showing a gradual and gentle repair trend, and the domestic economy is repairing faster than the overseas market. In China’s annual GDP growth target of 5%, weak demand has inspired stronger market expectations, and the central bank’s interest rate cut in the first half of the year also showed the determination to stabilize the economy, highlighting the space and potential for subsequent development. Therefore, steel is prone to a rebound in prices driven by rising emotional expectations, but prices fall again after returning to the fundamental logic.
China Metallurgical News (July 12, 2023, 7th Edition)