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The Steel Market Is Hard To Make A Big Breakthrough in The Off-season

Jun 28, 2021

After the Dragon Boat Festival, the operation of the steel market appeared fatigued. The price of rebar futures fell below the 5,000 yuan/ton mark, and the hot coil futures price fell back to around 5200 yuan/ton; the spot price also declined, with a single-day drop of up to 100 yuan/ton. Overall, the momentum for rising steel prices is already insufficient. The author believes that under the influence of macroscopic "cooling" pressure and reduced demand in the off-season, it is difficult for the steel market to make a major breakthrough.

   First of all, judging from the latest economic data released in May, a number of data closely related to steel demand did not perform as expected, which intensified market participants’ pessimism towards the market outlook. Taking the real estate industry as an example, data from the National Bureau of Statistics show that in May, the national real estate sales area reached 161 million square meters, an increase of 9.2% year-on-year, and the growth rate decreased by 10 percentage points from the previous month, which was an increase of 14.2% from the average for the same period in 2019 and 2020; nationwide; The amount of real estate development investment reached 1.41 trillion yuan, a year-on-year increase of 9.8%, and the growth rate decreased by 3.8 percentage points from the previous month. This was an increase of 14.1% compared with the average value of the same period in 2019 and 2020; the newly started area of real estate nationwide reached 204 million square meters, compared with 2019, The average value for the same period in 2020 decreased by 4.9%. As a key steel industry, the investment growth of the real estate industry has fallen short of expectations, and its role in pulling "steel demand" has weakened. Therefore, steel prices lack effective demand support.

Secondly, the two national departments have recently launched a joint survey on the regulation and supervision of commodity prices and stated that they will closely monitor the price trends of commodities such as coal, earnestly do a good job in price forecasting and early warning, keep abreast of the operation of relevant market entities and investigate abnormal transactions and malicious speculation. Severely crackdown on illegal activities such as hoarding and price hikes to maintain normal market order. In short, the macro policy still maintains a "cooling down" attitude towards the phenomenon of overheating steel prices. Affected by this, market speculation has been greatly reduced, which is conducive to the stable operation of the steel market in the off-season.

   Finally, market fundamentals are difficult to provide strong support for the breakthrough of steel prices.

  From the demand side, the current market demand has begun to weaken. From the perspective of excavators known as economic indicators, the national excavator sales in May reached 27,220 units, a year-on-year decrease of 14.3%, of which the domestic market sales reached 22,070 units, a year-on-year decrease of 25.2%. The weakening of demand can also be seen from the turning point of steel inventory. As of June 19, the total inventory of the five major steel products nationwide reached 20,559,800 tons, an increase of 665,600 tons on a week-on-week basis. Among them, steel mill inventory reached 6,301,300 tons, an increase of 266,400 tons on a week-on-week basis; social inventory reached 14,237,600 tons, an increase of 399,200 tons on a week-on-week basis.

From the perspective of supply, in early June, the average daily output of crude steel in key steel enterprises across the country reached 2335.3 million tons, an increase of 2.15% from the previous month; the average daily output of steel reached 2.2212 million tons, which was a decrease from the previous month, but increased by 16.07% year-on-year. . On the whole, the supply of market resources is at a high level. Under the pattern of “strong supply and weak demand”, it is difficult for steel prices to rebound sharply.

   Based on the above reasons, the author believes that steel prices will continue to adjust weakly in the short term. However, considering that the price of raw materials and fuels is more resistant to falling than the prices of finished products, under the support of the cost side, it is unlikely that the price of steel will fall sharply in the short term.

Source: China Metallurgical News-China Iron and Steel News Network