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August steel market may be volatile and strong

Recently, the "Beijing-Tianjin-Hebei and surrounding areas in the autumn and winter 2018-2019 air pollution comprehensive treatment tough action plan (draft for comments)" was released, requiring the steel, coking, casting industry to implement some peak production. In key cities such as Tianjin, Shijiazhuang, Tangshan, Handan, Xingtai and Anyang, the steel production is limited to 50% in the heating season, and the proportion of production in other cities is not less than 30%.

Last week (July 30 to August 3), the domestic steel market fluctuated and rebounded. Li Lijuan, general manager of Shanghai Securities Tianjin Sales Department pointed out that overall, environmental protection and production limits have become the norm in the steel industry. In August, environmental protection and production restrictions will restrict the release of steel production. From late August, high temperature and rainy weather will recede, construction projects are expected to gradually recover, and the contradiction between supply and demand in the steel market will be eased. Recently, the State Council executive meeting and the Politburo meeting The policy signal passed has boosted market confidence, and it is expected that the domestic steel market will show a strong trend in August.

The main basis for making the above judgments is:
First, the demand for steel circulation market in July rebounded. In July, the steel distribution industry PMI (Purchasing Managers Index) was 49.4%, an increase of 1.2 percentage points from June. The survey results show that the sales volume and order volume of steel circulation enterprises rebounded slightly in July, the confidence of the enterprises in the market outlook improved, and the willingness to purchase the market increased. It is expected that the demand for steel circulation market in August will rebound.

Second, demand is expected to gradually recover. Judging from the downstream demand of steel, in the middle and early August, the high temperature and rainy climate still has an impact on the construction project, but as the weather turns better in the next ten days, the demand is expected to gradually recover. Recently, the Standing Committee of the State Council reiterated that it will expand domestic demand and increase fiscal expenditure. In July, 19 provinces have issued nearly 200 billion yuan of special debts for infrastructure. Under the relevant policy guarantees, infrastructure investment in the second half of the year is expected to increase significantly. In addition, in July, the National Bureau of Statistics Service Industry Research Center and the China Federation of Logistics and Purchasing issued a manufacturing PMI of 51.2%, although it was 0.3 percentage points lower than that in June, but it was above 51.0% for five consecutive months, reflecting manufacturing. It continues to be in a relatively stable boom.
   Third, in July, the domestic steel market showed a volatility upward trend. According to the monitoring data, as of July 31, the national steel comprehensive price index was 164.3 points, up 2.5% from the end of June and up 11.0% year-on-year.

Fourth, the national steel social stocks have rebounded again. In July, steel inventories showed a downward trend, but the rate of decline slowed down noticeably. As of August 3, social steel inventories rose again. The social inventories of steel in 29 key cities nationwide were 8,459,700 tons, an increase of 161,400 tons from the previous week, an increase of 1.94%.
    Fifth, in July, the mine rose and fell, and the cost support role has weakened. In July, domestic iron fines prices and imported iron ore prices both rose, affected by the decline in coke prices, and the cost support for the later market decreased. At present, the iron ore market is generally weak and weak, and the import price of iron ore is gradually falling from 60 US dollars / ton to 70 US dollars / ton, entering a new round of price fluctuation adjustment period. Cost monitoring data showed that the average cost of carbon billet produced using raw fuel purchased in July fell by RMB 40/ton from June, a decrease of 1.5%.

Li Lijuan said that in response to the trade war provoked by the United States, the national decision-making departments have worked hard to expand domestic demand, including loose monetary policy, more active fiscal policy, and accelerated infrastructure investment. Therefore, from the perspective of development trends, domestic steel demand Will remain strong. Coupled with environmental protection and high pressure, the release of backward production capacity has been suppressed, which has led to further improvement in the supply and demand relationship in the steel market. At the same time, production and logistics costs have increased, and a strong cost support has been formed. In short, the steel market still has the momentum to rise. However, steel prices continue to rise, and when the critical point is reached, demand will be suppressed, and market risks should be guarded.


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