According to Futubull financial app, Huabao Securities released a research report that stated, as steel mill supply gradually increases in April, coupled with national policy stimulus downstream, the overall rate of destocking of steel in April has accelerated. Due to the strong will of steady growth in the domestic market, there is a strong expectation for steel demand. Steel supply is growing faster than demand. Under the strong expectation and weak reality, the supply and demand pattern of steel tends to be loose, and the price of steel overall fluctuates weakly. Due to the weakening of raw material prices, the center of production costs of steel mills has moved downward, and the overall profitability of steel companies has undergone a phase of improvement. However, there are differences between varieties, and the losses of rebar and hot-rolled coil continue to narrow, while the profits of cold-rolled coils have declined.

The favorable real estate policies released, coupled with the acceleration of physical workload in infrastructure investments and the continuous prosperity of the manufacturing industry such as autos and home appliances, are expected to support steel demand. Steel company profitability has improved and stimulates steel mill production enthusiasm. It is expected that steel mill capacity utilization rate will continue to increase in May. As the southern flood season will advance from the Pearl River Basin to the Yangtze River Basin in a simultaneous occurrence of drought and flood, terminal demand will be somewhat restricted under stronger cost support. It is expected that steel prices will maintain a volatile trend.

Huabao Securities' main views are as follows:

In April, steel mill supply was steadily increasing and the overall destocking process of steel accelerated.

According to 247 sample steel companies across the country, the daily average production of molten iron and the blast furnace operating rate both increased in April, with daily average production of molten iron at 2.258 million tons, up 1.8% month-on-month and down 7.9% year-on-year; the average blast furnace operating rate was 78.7%, up 3.4% month-on-month and down 6.4% year-on-year. With the gradual improvement of the seasonal capacity utilization rate of steel mills and the national policy stimulus downstream in April, the overall speed of destocking of steel accelerated. Especially for construction steel, which had a large decline in demand earlier, the decline in inventory this month was particularly evident. In April, the average monthly inventory ratio of rebar steel, wire rod, medium and heavy plates, hot-rolled sheet coils, and cold-rolled sheet coils compared to the previous month decreased by 18.4%, 28.6%, 4.3%, 4.3%, and 4.2%, respectively.

With weak demand growth, steel prices are running weakly.

Huabao Securities stated that steel consumption showed differentiation in April, with a month-on-month increase in construction steel such as rebar and wire rod and a year-on-year decline; there was a serious month-on-month decline in the manufacturing steel such as medium and heavy plates, hot-rolled sheet coils, and cold-rolled sheet coils, coupled with strong expectations for steel demand in the domestic market due to the strong will of steady growth, steel supply is growing faster than demand. Under the strong expectation and weak reality, the supply and demand pattern of steel tends to be loose, and steel prices overall fluctuate weakly. In April, the comprehensive steel price index was 105.77, down 2.3% month-on-month and 7.8% year-on-year.

The center of steel mill production costs has moved downward, and the overall profitability of steel companies has improved.

Huabao Securities pointed out that the price trends of raw materials in April showed differentiation. The fundamentals of iron ore have marginally improved due to a significant decrease in shipments from Australia and Brazil, and the continuous resumption of production at steel mills, which supported a weakly trending iron ore price. Due to slow growth in molten iron production and weak stocking demand, the demand for metallurgical coke remains weak, and the price of metallurgical coke is running weakly.

In April, the monthly average value of the Platts iron ore price index (62% Fe: CFR: Qingdao Port) was USD 110.9 per ton, up 1.3% month-on-month and down 4.5% year-on-year; the price index of coking coal was 1884.7 points, down 9.1% month-on-month and 14.2% year-on-year; and the price index of coke was RMB 1,707.5 per ton, down 8.6% month-on-month and 27.4% year-on-year. In April, the central production cost of steel plants has moved downward, and the overall profitability of steel companies has undergone a phase of improvement. According to data from the China Iron and Steel Association, the profitability rate of 247 sampled steel mills was 42.64% in April, an increase of 17.79 percentage points month-on-month.

Risk reminders: weak consumption growth in the manufacturing industry such as home appliances and autos; insufficient stimulations from the real estate and infrastructure at the macro level;failure to recover downstream demand; a rapid increase in steel mill supply, which could add pressure to the improvement of steel fundamentals.