The tight supply and demand situation of steel eases the basic balance of production and marketing

Reporter Zhou Xuesong

Recently, China's steel prices are at a high level. With the implementation of the "double control" policy of steel, the output showed a downward trend. According to data from the National Bureau of Statistics, in July 2021, the average daily output of crude steel in China was 2.7997 million tons, the lowest value since April 2020, down 10.53% month-on-month; the average daily output of pig iron was 2.350 million tons, down 7.0% month-on-month; and the average daily output of steel was 3.581 million tons, down 11.0% month-on-month. At the same time, some steel prices fell slightly.

"At present, there is no pressure on the steel industry to ensure supply and stable prices, and the profits of steel companies this year are very high in the first half of the year because of the shipping tension (iron ore and raw material imports) brought about by the epidemic, the transportation is gradually easing, the futures market is also returning to rationality, the domestic project funds are tightening, and the financing costs of enterprises have increased. If future demand is difficult to increase, steel prices may still have room for correction. Industry insiders said in an interview with the China Economic Times reporter.

The basic balance between production and marketing

According to the data of China Iron and Steel Association, in July 2021, key statistics steel enterprises produced a total of 70.0603 million tons of crude steel, down 5.61% year-on-year, crude steel daily output of 2.26 million tons, down 8.26% month-on-month; production of pig iron 61.9174 million tons, down 4.92% year-on-year, pig iron daily output of 1.9973 million tons, down 6.22% month-on-month; production of steel 67.0110 million tons, down 5.27% year-on-year, steel daily output of 2.1616 million tons, Decreased 9.77% sequentially.

According to the data released by the Steel House on August 19, the social inventory of rebar in the week was 7.1289-711.57 million tons, an increase of 13,200 tons or 0.19% month-on-month, and the previous week's data was a decrease of 67,700 tons or 0.94% month-on-month, and the inventory turned from falling to rising.

Ge Xin, deputy director of lange steel research center, told the China Economic Times reporter that at present, the global economy is still affected by the epidemic, especially the rapid spread of the Delta strain in Europe and the United States, while affecting The economies of East Asia and Southeast Asia, and the threat to China still exists. The comprehensive reduction in the RRR in early July timely supplemented the shortage of liquidity in the market at that time, but due to the three main aspects of domestic economic growth: the marginal slowdown in export growth, the lack of investment growth, and the limited overall recovery of resident consumption, the current economic recovery is still unstable and unbalanced.

"Major economic growth data generally slowed in July, infrastructure investment slowed sharply, and real estate investment showed weakness in terms of sales, construction, construction and funding sources. The performance of real estate data is particularly weak, the decline in sales area means that the cash flow of real estate development enterprises has tightened, and the area of new construction has decreased year-on-year for 4 consecutive months, which means that the new demand has weakened, and the supporting role of real estate on steel demand has weakened. The head of the Steel Home Research Center told the China Economic Times reporter that steel futures fell sharply and iron ore fell sharply, indicating that the market formed a consistent expectation of weak demand. The overall market is in a weak pattern of supply and demand, and production and marketing are basically balanced.

Commodity prices are falling

Judging from the Month-on-Month Data on PPI in July released by the National Bureau of Statistics, the PPI rose by 0.5%, an increase of 0.2 percentage points over the previous month. Among them, the price of means of production rose by 0.6%, an increase of 0.1 percentage points; the price of living materials turned from 0.2% in the previous month to an increase of 0.1%, of which the price of ferrous metal smelting and rolling processing industry fell by 0.2%, and the price of non-ferrous metal smelting and rolling processing industry fell by 0.1%. In the view of experts, this shows that the effect of the early commodity market supply and price stabilization policy is emerging, and at the same time superimposed on the correction of the late policy of sports carbon reduction, Ge Xin expects that by the third quarter, the price of the domestic commodity market will show a significant high decline trend.

Judging from the main financial data in July, the overall contraction is obvious, and the amount of new RMB loans, the increase in the scale of social financing and the year-on-year growth rate of narrow money (M1) in the month of July have reached the lowest value this year, while the year-on-year growth rate of broad money (M2) has also shown a dynamic adjustment trend, indicating that the central bank has a certain forward-looking attitude towards the degree of currency investment.

"In the short term, since the outbreak of the epidemic, the fiscal and monetary policies of developed economies have stimulated a huge scale, which not only increased inflationary pressures, but also spawned asset price bubbles, which made the financial market trend deviate from the real economy and increase vulnerability." And the global mismatch between supply and demand still exists, whether the rise in inflation will continue to remain to be seen, the Chinese central bank's forward adjustment to currency injection will hedge the inflation expectations of the global commodity market to a certain extent, especially for high domestic steel prices, will show a certain degree of suppression effect. Ge Xin said.

Li Xinchuang, secretary of the party committee and chief engineer of the Metallurgical Industry Planning and Research Institute, said in an interview with the China Economic Times reporter that the relevant departments are implementing production restrictions, if the market is good, and steel production is limited, there may be contradictions in ensuring supply and stable prices. In the next step, the key to market movement is how the policy can better deal with this contradiction.