Lack of power support for steel price rising continuously

In the near future, the steel price has risen by a large margin, and the market speculation mentality has gradually increased and the fear of heights has spread. In fact, oversupply is still the norm in the market. China's steel industry must continue to shift its focus from volume growth to quality improvement. Recently, steel prices have risen. According to the monitoring of China Iron and Steel Association, at the end of November, China's steel price index (CSPI) was 108.17 points, up 3.67% on a month on month basis, mainly due to the increase in the price of long materials such as screw steel, while the increase in other types of steel was relatively small. In November, the spot price of screw steel period rose sharply. As of November 30, the national spot price of screw steel is 4145 yuan per ton, 260 yuan higher than that at the beginning of the month. At the end of November, the closing price, the highest price and the lowest price of the main screw steel futures contracts rose by 7.10%, 7.22% and 7.30% respectively from the beginning of the month. With the rise of steel price, the social stock of steel continued to decline. In November 2019, the total social inventory of five categories of steel products in 20 cities in China showed a downward trend for three consecutive months, and the decline in that month was expanded, among which the inventory of screw steel decreased by more than 20% month on month.

Behind the rise of steel price is the improvement of steel industry. PMI of iron and steel industry surveyed and released by China Federation of things steel logistics professional committee showed that it was 45.4% in November, up 4.1 percentage points from last month, ending a six-month month month on month decline. The sub index shows that market demand picked up in November, and product prices and raw material prices rose to varying degrees. Under the dual influence of demand recovery and profit driven, the production of steel mills increased, and the purchase intention of enterprises was strong. The PMI report of iron and steel industry pointed out that the steel demand in November was resilient, and the impact of low temperature in the South was relatively small. Near the end of the year, the downstream concentrated catch-up, and the terminal demand tended to pick up in a short term. The new order index of steel enterprises was 43.8%, up 12.2 percentage points from the previous month, ending the situation of lower than 40% in March in a row. In addition, after winter, the number of ports in Northeast China suspended operation due to strong wind increased, which resulted in the North resources not flowing down to the south, and intensified the situation of tight market resources. "As the state increases the regulation of counter cyclical policies, infrastructure projects are accelerated." Ding gen, a member of the iron and steel industry, said that due to the rush period of infrastructure construction at the end of the year, there was a rush of work at various construction sites. The unexpected outbreak of market procurement demand led to the continuous decline of steel inventory and the rapid rise of steel price. In the face of downward economic pressure, China has taken measures to stabilize growth, and infrastructure investment has continued to make efforts.

From January to October this year, infrastructure investment increased by 4.2% year-on-year, 0.1 and 0.4 percentage points higher than that in the first half of this year and the whole year of last year, respectively. The growth rate of infrastructure investment shows a trend of stabilization and recovery. In order to maintain the driving force of sustained growth of investment, the state has recently repeatedly offered practical measures. First, the quota for some new special debts in 2020 should be issued in advance, and specific projects should be implemented as early as possible to form an effective economic pull; second, the capital ratio of infrastructure projects should be appropriately reduced. Relevant experts pointed out that the recovery of infrastructure investment demand to a certain extent supports the steel market demand. At the same time, the environmental factors have a certain impact on the steel market price. In addition, with the rise of steel price, the market speculation gradually strengthened, which also contributed to the rapid rise of steel price. However, at present, the market has generated a relatively strong "fear of heights" sentiment, and the expectation of future market turns to be cautious. In fact, from the perspective of industry fundamentals and operation trend, the driving force of steel price rising is insufficient. "The corresponding products of the limited production enterprises are mainly long materials, which will cause the steel price to fluctuate to a certain extent. But on the whole, China's steel production capacity and production level of steel enterprises are enough to meet domestic demand. " Li Xinchuang, President of metallurgical industry planning and Research Institute, pointed out that in 2019, domestic demand has created a better market environment for the steel industry.

While seizing the market opportunities and increasing production steadily, iron and steel enterprises are also facing many challenges and difficulties, such as the rapid release of production capacity, the rise of international trade protectionism and the rise of enterprise costs. With the increasing downward pressure on the economy, the iron and steel industry will also face more difficulties and new challenges. Statistics show that from January to October 2019, the national crude steel output was 829 million tons, up 7.4% year on year; the steel output was 1.001 billion tons, up 9.8% year on year. In the case of a substantial increase in production, the profit of the member enterprises of China Iron and Steel Industry Association in the first three quarters decreased by 32% year-on-year, and the profit margin of sales decreased by 3 percentage points. Obviously, oversupply is still the norm in the market. China's steel industry must continue to shift its focus from volume growth to quality improvement. In December, the iron and steel logistics professional committee of China Federation of things predicts that the demand of the steel market will enter the national "freeze", and the demand of the South will also drop sharply. In terms of supply, if the current situation of production restriction is maintained in December, driven by profits, there is limited space for production reduction. The strong supply and demand in the steel market will be weak or will appear again, and steel prices will enter the downward channel with the weakening demand.