① After a few years, demand in the steel market was weak. A steel trader in Tangshan told the reporter, “Sales have been weak until now. Compared with the same period last year, it is about 20% less.” ② Analysts believe that the market still has expectations for macro-favorable factors such as economic recovery and interest rate cuts. As the seasonal peak season approaches and inventories are gradually digested, and absolute low prices also help attract bottom-up capital, there may be opportunities for a rebound.
Financial Services Association, March 16 (Reporter Zhang Liangde) The 2024 storm has passed, but demand in the steel market has yet to recover. From the steel market in Foshan to the Xiaobali steel market in Tangshan, the mentality of steel people is becoming more and more anxious in the reality of “not being busy every day” and “not being able to let go of the warehouse.”
The recovery in demand for steel storage terminals was significantly slower than in the same period last year
Recently, a reporter from the Financial Services Association conducted interviews with steel traders in Hebei, Shandong, Guangdong and other places about the current sales situation in the steel market. The most heard voice was “this year is clearly not as good as last year.” A steel trader in the Tangshan area told the reporter, “Sales have been weak until now. Compared with the same period last year, it is about 20% less.”
It is worth noting that the decline in demand is not only due to steel varieties such as building materials and profiles, but distributors of hot coils, plates, and ordinary special steel also felt the same way. Some Putuo Steel dealers in Shijiazhuang told the Financial Federation: “Sales are not good this year; demand is not as good as in previous years.” Meanwhile, the Lecong Steel Market in Foshan, which mainly sells hot rolls and sheets, also experienced inventory accumulation and slow sales. Some local steel traders said, “The warehouses are basically full, and there is no place to put them.”
Jiang Yuanlin, a senior analyst at Centennial Construction Network, told the Financial Federation: “According to our market research, the operating rate of the fourth phase is about 75%, which is about 11% lower than the same period last year. According to our expectations, the fifth phase will probably rise to about 80%. It is estimated that under normal circumstances, it will take about two weeks to return to the starting level of the fourth phase last year.”
Due to the weak actual supply and demand situation, current market prices are more guided by expectations. Zhu Shaonan, an analyst at Dongwu futures industry, said, “The futures market is now (in) driving changes in spot prices.”
Since the Spring Festival, prices of all types of black commodities have dropped sharply. RB2405, the main contract for threaded futures, closed at 3,494 yuan/ton on Friday night, with a cumulative decline of 9.34% after the year; the main contract for hot roll futures, HC2405 closed at 3,674 yuan/ton on Friday night, with a cumulative decline of 7.78% after the year; the main iron ore contract I2405 closed at 790.5 yuan/ton on Friday night, with a cumulative decline of 17.96% after the year.
However, with the drop in raw fuel prices, the cost support for iron and water has weakened. In terms of steel stock, some merchants in Hebei are offering rebar prices 270 yuan/ton lower than after the Spring Festival. Upstream in the industrial chain also continued to receive negative feedback due to insufficient terminal demand and weak expectations. Prices of coal, coke, and iron ore in the spot market fell by varying degrees, and the price drop for some raw materials was even greater than that of finished materials.
Chen Liang, deputy general manager of Pocket Coke, told the Financial Federation: “Currently, the lowest price of low-sulphur main coking coal in the Shanxi Anze region has dropped to 1950 yuan/ton, about 500-600 yuan from the highest point a few years ago. Meanwhile, the price of coking coal in Changxie also loosened ahead of schedule, and the price of low-sulphur main coking coal has dropped to around 2,000 yuan/ton.”
The fifth round of coke has basically been implemented. Chen Liang expects that due to the recent sharp drop in the price of raw coking coal and the continued loss of steel mills, there is a possibility that it will continue to rise and fall in the future.
Market expectations for infrastructure and real estate are declining, and more attention is being paid to the interest rate cut cycle and supply-side reforms
Real estate sales data for the first and second quarter of this year is still weak. According to data from Kerry monitoring, the sales area of second-hand housing in 19 key cities in January-February was 1.35 million square meters, down 14% from the previous year. At the same time, infrastructure projects have also slowed down this year, and some regions have slowed down some infrastructure projects to match debt.
This has also had a significant structural impact on the steel market, and the operating pressure on construction steel companies has increased. The aforementioned Tangshan steel trader said, “Inventory pressure on steel mills, steel traders, and related industrial chains is high. In particular, stocks of construction steel are high, demand recovery is slow, and pessimism dominates the market. The policy orientation may focus on manufacturing transformation and equipment renewal rather than continuing to increase real estate and traditional infrastructure construction.”
Industrial steel ushered in favorable policies. This month, the State Council issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-In”. The aforementioned steel traders in the Lecong Market in Foshan said that the policy will guide enterprises to carry out technological upgrades and equipment modifications, or increase the amount of steel used in industrial use. However, at present, the market has not changed much, and companies are afraid to invest easily when demand is unclear and capital chains are tight. At the same time, due to the amount of work involved in industrial restructuring, it will still take time for favorable policies to transform into new demand points for steel products.
However, steel price trends are also supported by expectations from other factors. As the prices of non-ferrous metals such as gold, silver, copper, and aluminum have recently begun to rise, market expectations that the Federal Reserve will enter a cycle of interest rate cuts have increased. Zhu Shaonan believes that the market has expectations for macro-favorable factors such as economic recovery and US interest rate cuts. With the advent of the seasonal peak season and the gradual digestion of inventories, and the absolute low price also helps attract bottom money, the market may have an opportunity to rebound.
Currently, due to the sharp drop in raw fuel prices, steel mills have high raw fuel inventory prices before the holiday season. Steel mills in many places are carrying out production limit maintenance under the guidance of local associations or spontaneously to adjust the supply and demand structure. Steel traders in the Foshan region believe that the steel industry is in a painful period of transformation, and it is expected that a number of enterprises will withdraw from the market for various reasons. However, he also said that as inventories are gradually digested, especially after reaching a certain level, steel mill production cuts and a slow recovery in market demand may lead to a rebound in market prices, leading to a phased restoration of the market.
However, autonomous behavior is less binding, and the industry may still require a higher level of overall regulation. Chen Liang believes that the industry may once again launch supply-side structural reforms to resolve the problem of excess capacity.