Some views on the steel market situation

Several views on the steel market situation

Abstract: in the future, the reason for the sharp decline in profit growth of China's steel enterprises lies in the improvement of the comparative base in addition to the fall in price growth. The decline in the profit growth of the steel industry will restrain the share price of the steel sector in the stock market

1. The growth rate of fixed asset investment fell. According to statistics, in the month of this year, the national fixed asset investment (excluding farmers) increased by 7.3% year-on-year, and the growth rate fell by 0.2 percentage points compared with the month, which is the decline in growth rate for five consecutive months. Among them, the national real estate development investment increased by 7.8% year-on-year in nominal terms, and the growth rate fell by 0.3 percentage points compared with the month; The sales area of commercial housing increased by 8.2% year-on-year, 2.1 percentage points lower than that in January

2. The growth rate of industrial added value fell. According to statistics, in October 2017, the added value of industries above designated size increased by 6.2% year-on-year, down 0.4 percentage points from September

3. The export growth rate of export goods trade fell. According to customs statistics, the total export value of China in October increased by 6.1% year-on-year, nearly 3 percentage points lower than that in September

the weakening of the growth rate of the above three carriages shows that the macro environment of the steel market has tightened, which is bound to affect the steel consumption in October (actual consumption, rather than apparent consumption, the same below). Based on this, the downward trend of growth rate is calculated. It is expected that the growth rate of the above economic indicators will also show a downward trend in the future, so the growth rate of national steel consumption will also continue to fall, of which the apparent consumption growth rate will fall back to within one digit. Because of this, the optimistic judgment of the steel market is adjusted to cautious optimism. This cautious and optimistic rating period is not only valid before the Spring Festival, but also likely to last until the whole year of 2018

second, the decision-making departments have stepped up measures to stabilize growth

in recent periods, the growth rate of macroeconomic indicators has fallen, and the macroeconomic environment has tightened, which requires the decision-making departments to carry out reverse adjustment and introduce measures to stabilize growth. In the same period, China's price situation was good, showing a relatively ideal situation of neither deflation nor serious inflation, and a relatively safe range, which also exempted the decision-making departments from the worries of stimulating economic growth, especially increasing the money supply and expanding the fiscal deficit

according to statistics, in October this year, the ex factory prices of industrial producers across the country increased by 6.9% year-on-year, the increase was the same as that of the previous month, with a month on month increase of 0.7%. In January, the ex factory prices of industrial producers nationwide rose by 6.5% year-on-year. In October, the national consumer price rose by 1.9% year-on-year, still moderate

it is estimated that the steady growth measure of the decision-making department is still the correct application method to expand the national economy. The correct application method of the fixture of the short electronic tensile testing machine should be the investment in infrastructure construction in the board field, the investment in environmental and national defense construction, the investment in ensuring investment and improving people's livelihood. These are investments that consume steel with high strength

in order to cooperate with the realization of steady growth measures, it is expected that in the next stage (mainly in the new year), China's monetary policy may maintain an appropriate distance from the Federal Reserve, implement a neutral and loose monetary policy, and continue to implement an active fiscal policy to expand the fiscal deficit; Increase investment funds; It will also increase wage and welfare expenditures in national income to provide impetus for economic growth

III. focus on future investment and steel consumption highlights

1 Fixed asset investment may pick up. Although the current growth rate of fixed asset investment continues to fall, there are many bright spots. First, the construction in January increased by 18.1% year-on-year, and the growth rate was the same as that in January; The total investment of new projects is planned to increase by 3.8%, and the growth rate will increase by 1.4 percentage points. Second, real estate destocking has indeed achieved great results. At the end of October, the area of commercial housing for sale nationwide was 8.82 million square meters lower than that at the end of September, a decrease of more than 10%. In March, the land acquisition area of real estate development enterprises increased by 12.9% year-on-year, 0.7 percentage points higher than that in January. Fourth, the real estate replenishment will drive the increase of new projects in the future. The real estate inventory is currently at a low level, the investment data is stable, and the land acquisition data is good. Once the real estate enters the replenishment cycle in the second half of next year, it may stimulate the real estate start-up link and benefit the steel demand

2. The construction of the "the Belt and Road" drives the demand for steel. The "the Belt and Road" is indeed a highlight of China's steel consumption, and it is expected to gradually develop in the future. It is believed (Bai Weicheng, chief commercial officer of BHP Billiton) that the projects involved in the "the Belt and Road" are expected to generate up to 150 million tons of steel demand in the next 10 years. If it is equally allocated to the 10-year period, it is equivalent to the increase in steel demand of 15million tons per year. The 150 million tons of new steel demand is mainly electricity, railways, oil and gas pipelines and other transportation projects. These investment projects will generate a large demand for building materials and equipment. Among them, 80% of the steel demand will be used for building structures and reinforced concrete, while the remaining 20% will be used for machinery manufacturing and other equipment production

IV. steel prices are running high before the Spring Festival.

because the macro environment is tightened, we are cautious about the future steel market. And because some factors can ensure the relatively high operation of steel prices, because steel prices will continue to rise although the increase has dropped significantly, so they are optimistic about the steel market, rather than pessimistic. Therefore, before the Spring Festival, the steel market is cautious and optimistic. The system management function of the impact tester is mainly completed by the administrator

under the circumstances of tightening macro environment and falling steel consumption, steel prices can continue to rise slightly, mainly based on:

1 Asymmetry of limited production. In order to prevent haze, the production is comprehensively limited in the heating season. Although it has a weakening impact on both steel supply and demand, the impact on steel supply is far greater than that on steel demand. This is because China's steel supply is mainly in the northern region, and the haze is also mainly in the northern region. Therefore, the comprehensive production restriction affected by the haze will have a great impact on the steel supply, especially the supply of construction materials. On the other hand, although construction sites in the North stopped construction because of haze, the construction in the south, where haze occurred less frequently, continued as usual during the shutdown of northern steel enterprises, as did other steel consumption industries. Therefore, the impact of limited production in heating season on steel supply is far greater than consumption, which is the asymmetric impact. Therefore, the previous view remains unchanged: during the limited production period of heating, the supply of some steel varieties will be tight

2. Take the opportunity to hype the theme. The asymmetry of the impact of production restriction on both sides of supply and demand may lead to the expectation of tight supply of some varieties, which will certainly become the subject of speculation of speculative capital. Nowadays, China's real economy is short of money, but the speculative field is abundant, and it has never been "poor money". In addition, in the context of global economic recovery, the structural demand for asset allocation will also attract funds to flow into the commodity market, which will promote the price of commodities, especially the black series commodities. Market monitoring data show that from the current sectors of futures and stock markets, black is the largest sector in this round of funds this year, and has become a hot sector for the continuous precipitation of funds. Since June, the gap between the size of funds has further widened compared with other sectors, accounting for 34.3% of the total holdings, far higher than the level of 26% from September to December last year. A large number of funds entering the steel futures field will undoubtedly increase the financial purchase demand of steel and promote the price rise, including futures and spot. It is worth noting that limiting production and reducing production capacity will be the long-term theme of steel market speculation in the new year, which will not disappear, but will continue to change. For example, "banning ditiao steel" will be transformed into "preventing the resurgence of win-win cooperation we have tasted" in 2018; The same is true of the theme of "removing excess capacity". In the search for "hype themes", speculative capital has always been pervasive

v. two factors have helped the steel export volume turn down to an increase

since this year, the world economy has maintained a recovery trend, and developed countries and emerging economies have experienced synchronous growth for the first time. The world economic organization has repeatedly raised its economic growth forecasts for this year and next. Goldman Sachs, an international investment bank, recently released a report saying that 2017 is a good year for the global economy, and economic growth is accelerating all over the world. As the largest economy in Europe, Germany's GDP unexpectedly increased by 0.8% in the third quarter. The Japanese economy grew for seven consecutive quarters, while the US economy grew by 3% in the third quarter. It is expected that the global economy will grow by 4% next year in 2018. Factors contributing to this good expectation include strong economic growth momentum, loose financial environment, global monetary policy is still "highly loose" by historical standards, and the possibility of US fiscal stimulus. Driven by it, world trade has been active for some time, and the cargo throughput of global shipping and foreign ports has increased significantly. Market monitoring data show that the Baltic dry bulk index (BDI) has climbed from the low point of the first quarter of this year (February 14) - 685 points to 1455 points on November 14, an increase of 112%. The surge in cargo shipping volume and the prospects for the future have led to a surge in shipbuilding orders, with an increase of more than 30%. Therefore, the growth rate of world steel demand is expected to increase in 2018. At the same time, steel prices in the international market are also rising. Driven by the above two aspects, it is expected that China's steel exports (direct exports) will rebound in the new year, and may turn down to increase year-on-year. The year-on-year decline in China's steel exports in 2018 is also due to the impact of the comparative base. It is estimated that the annual steel export volume may reach 80million tons, an increase of about 3% over the previous year

VI. the profit growth rate of the steel industry fell significantly

it should be said that before the Spring Festival, including 2018, while the steel price is running at a relatively high level, its growth rate will also fall sharply, and the overall level will show a slight rise. And because the price rise is the main factor for the iron and steel enterprises to increase their profits at this stage, it is expected that the profit growth rate of iron and steel enterprises will also fall sharply in the future, and it is difficult to reproduce the multiple and multiple growth

in the future, the reason for the sharp decline in profit growth of China's steel enterprises lies in the improvement of the comparative base, in addition to the decline in price growth. The decline in the profit growth of the steel industry will restrain the share price of the steel sector in the stock market

VII. Three uncertainties in the steel market next year

there are three biggest uncertainties in the steel market next year:

first, can the success of domestic capacity reduction and the ban on "ground bars" be consolidated? The competent department announced that the task of removing excess capacity of steel has been completed ahead of schedule, and the "ground steel bar" has been completely banned in the first half of this year. Next, we need to see whether the closed steel enterprises and the "removed" steel production capacity will revive. On the one hand, the competent department requires strict prevention and continuous inspection and supervision; On the other hand, the temptation of high profits of enterprises and the tight local finance and taxation will make some enterprises and local governments try every means to bypass supervision and resume production. The game between the two enhances the uncertainty of the supply and demand relationship and market trend of the steel market in the new year. Due to the uncertainty of the above two games and the significant decline in demand growth, the steel market can only be cautiously optimistic and downgraded in the new year

second, can the US government successfully implement the "tax reform"? As mentioned earlier, Trump's "tax reform" is an earth shaking policy.