Looking back at the steel market in February, as of February 28th, there has been a slight rebound followed by a rebound. The comprehensive price index of steel has fallen by 48 points, while the prices of thread and wire have fallen by 53 and 49 points, respectively. The prices of medium and thick plates, hot rolled and cold rolled plates have fallen by 17, 54 and 42 points, respectively. Iron ore prices have fallen by 15 US dollars, scrap steel prices have fallen by 12 points, and coke prices have fallen by 212 points, which is slightly weaker than expected.
Looking ahead to the steel market in March, as temperatures rise and demand continues to release, a more fully adjusted market is expected to lead to a resonant rebound in spot steel prices along with raw fuel prices.
The bearish sentiment in March has been released to a certain extent, which is conducive to the rebound of steel prices. According to the Small and Medium sized Enterprise Development Index released by the Small and Medium sized Enterprise Association, most sub indicators and sub industry indicators have slightly rebounded. From the perspective of credit, liquidity has also improved, and the enthusiasm of residents and enterprises for loans has increased. As of now, the total amount of special refinancing bonds disclosed nationwide has reached 1441.151 billion yuan. In addition, according to statistics on the sources of infrastructure funds, the cumulative net financing amount of special bonds in the first eight weeks of this year was 464.9 billion yuan (the same period last year was -5.7 billion yuan), a significant increase year-on-year. However, macroeconomic policies are still intensifying and improving efficiency, such as asymmetric interest rate cuts after reserve requirement cuts, and strong advocacy for equipment upgrades and trade in. According to a survey of 5951 data from Steel Union, companies have relatively weak expectations for the overall business situation in 2024. The proportion of companies with less optimistic expectations has increased by 6 percentage points, while those with more optimistic expectations have decreased by 35 percentage points; More than 40% of enterprises have tight funds, a slight increase compared to last year; Although 70.5% of the surveyed companies maintained stable or increased orders in the first quarter, there was still an 8 percentage point year-on-year decrease, and the proportion of companies with decreased orders increased by 14 percentage points. These bearish data, as well as the tight funds of some companies, the impact of rainy and snowy weather on demand, high inventory of certain varieties in certain regions, and a pullback in raw fuel prices, have to some extent been reflected in the price trend of the futures and spot markets. March is unlikely to see the bearish events of Silicon Valley banks in the United States like last year. With these bearish events in February and at the latest until early March being exhausted, the sentiment of March trading bearish should be offset by the bottoming out of demand, especially after the sustained positive policies of the country are introduced, the effect will be further enhanced (definitely better than the same period last year), and the sentiment should be certain to improve. On the 28th, the comprehensive price of steel was 288 yuan lower than the same period last year, which laid a good foundation for the fluctuation and rebound of steel prices.
The arrival of the turning point in steel fundamentals in early March is conducive to boosting the rebound of steel prices. From the leading indicator BDI reflecting the global economy and trade, the rebound from 1308 points on January 17th to the high of 2041 points on February 28th indicates that global total demand will continue to improve in the coming period (which should cover the entire March). In March, as the national weather warms up and gradually enters the peak construction season, the demand for construction steel is gradually released. From the transaction of construction materials surveyed by Ganglian, on January 18th of the lunar calendar, the sample sizes were 245536 tons and 10664 tons, respectively, which is not much different from the 253169 tons and 100510 tons in the same period last year. The daily average transaction of Gangyin platform from the 9th to the 18th day after the Spring Festival was 177499 tons, an increase of 19.3% from 148753 tons in the same period last year. Based on data from 10094 construction sites surveyed over the past century, in terms of resuming work, the national rate of resuming work on construction sites in the second week after the Spring Festival was 39.9%, an increase of 1.5 percentage points year-on-year in the lunar calendar. However, the labor rate decreased by 5.2 percentage points year-on-year. In terms of real estate, from January 1st to February 25th this year, the transaction area of new houses in 30 major medium-sized cities decreased by 43% year-on-year, while the transaction area of second-hand houses in 21 major medium-sized cities increased by 18% year-on-year (including a 25% increase in first tier cities).
Microscopic observation shows that in January this year, China State Construction, China Chemical, China MCC, and China Electric Power Construction signed new contracts with an increase of 13%, 53%, -4%, and 15%, respectively. Observing the use of steel in the manufacturing industry, in January, the global manufacturing PMI returned to the level of 50 on the boom bust line for the first time in 17 months. China’s manufacturing PMI production index in January was expanding, indicating an increase in demand for raw materials. According to the survey conducted by Steel Union, the daily raw material consumption of steel structure, machinery, and household appliance sample enterprises increased by 47.09%, 8.29%, and 12.19% month on month compared to February in March. According to another survey, automobile production in March may reach 2.4 million vehicles, a significant increase compared to the previous month, and the demand for steel has significantly increased. On the other hand, due to the fact that about 75% of steel mills are still in a loss making state, even if some companies may improve in March due to the impact of the current decline in raw fuel prices, in any case, the daily average iron production of 247 steel mills in the week of the 22nd was 2.2352 million tons, a decrease of 105800 tons compared to the same period last year. In March of last year, the daily average iron production of steel mills increased by 80000 tons to 2.38 million tons compared to February. Even if the iron production of steel mills increased in March this year, It is estimated that the daily average increase may not be 80000 tons. From the perspective of the reference indicator inventory of supply and demand balance, whether it is during the Spring Festival holiday or the two weeks after the holiday, the absolute accumulated inventory is slightly lower than the same period last year in the lunar calendar. So, it is estimated that there may be a peak in inventory in the latest three weeks after the holiday, which means that there will be a turning point in inventory in early March. The peak in inventory is slightly higher than last year’s level, but the speed of destocking may be slightly faster than the same period last year in the lunar calendar.
The prices of raw materials and fuels that have undergone sufficient adjustments may experience resonance rebound with steel prices under the influence of increased demand. Since the beginning of this year, the price of coke has dropped by 402 yuan, and the price of iron ore has also dropped by 23 US dollars. From an average price perspective, the comprehensive price index of coke in February fell by 97 yuan, and the price of iron ore fell by 10 US dollars. The lowest contract price for iron ore 2405 fell to 865, which is supported by the golden ratio of 0.382. Unless steel prices continue to fall below the previous low, there should be some support for iron ore near this position in the short term, Of course, it is not ruled out to adjust towards 840 or even 825. In March, with the release of steel demand, the supply level of steel mills with repaired profits will slightly increase, which will drive an increase in raw fuel demand. Raw fuel prices also have the momentum to rebound, making it easy to form a resonance rebound between raw fuel prices and steel prices.
In summary, in March, the fundamentals of the steel market gradually improved under the influence of the gradual release of demand increment and the turning point of steel inventory. With the gradual release of the effectiveness of various policies that promote economic stability and progress, the sentiment will also be partially repaired. In the short term, it is not pessimistic, and the future is cautious and optimistic. Of course, we also need to be cautious about the release of demand being less than expected due to weather and policies, and pay more attention to whether the release of steel plant production exceeds expectations, which may lead to the risk of unexpected increased pressure.
From an operational perspective, it is necessary to flexibly establish a certain amount of inventory by taking advantage of opportunities at low prices and combining multiple markets. If the inventory is relatively high, it is necessary to flexibly exchange, reasonably layout, and reduce costs. Steel mills with profits should focus on full production, while steel mills without profits should actively adjust their output structure to turn losses around.
Post time: Mar-06-2024