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Original title: How will steel prices be interpreted after policy correction
Source: SDIC Anxin Futures Research Institute
On July 30, the Politburo of the Central Committee held a meeting to once again emphasize the need to ensure the supply and price stability of bulk commodities. It is necessary to coordinate and orderly do a good job in carbon peaking and carbon neutrality, and introduce the carbon peaking action plan before 2030 as soon as possible, adhere to the national game of chess, correct the campaign-style “carbon reduction”, and resolutely curb the “two highs” projects. Blind development. As soon as the news came out, the market’s expectations of the reduction in steel supply significantly cooled, and futures prices fell sharply in response.
Looking back at this inter-year market situation, the increase in steel prices was mainly driven by factors such as the upward movement of the raw material center, the reduction of domestic crude steel production, and the imported inflation brought about by global monetary easing, which was manifested in a situation in which both costs and profits rose significantly. In particular, the reduction of domestic crude steel volume has a greater impact on the overall pattern of supply and demand and has become a key factor in the dominant market. With the increase of crude steel reaching 64 million tons in the first half of the year, a corresponding decrease of 64 million tons / 10.4% in the second half of the year will be needed to ensure the same for the whole year. Since the end of June, Anhui, Gansu, Jiangsu, Shandong and other places have successively issued policy documents that require crude steel output this year to not exceed last year, and superimposed on the sharp decline in steel output in recent weeks, the reduction in output has shown a swarming momentum.
The campaign-style carbon emission reduction has caused the prices of related products to rise sharply, disrupting the rhythm of the market, and causing greater impact on upstream and downstream enterprises and the macro economy. The Politburo meeting promptly corrects this phenomenon. From the perspective of policy requirements, after the establishment of carbon peak and carbon neutral goals, controlling production capacity and suppressing production is the long-term direction, but the rhythm cannot be achieved overnight, forming a one-size-fits-all situation. It is expected that the impact of supply-side related policies on the market will tend to be moderate in the future, and the market is expected to return to the demand-led logic.
From the perspective of major downstream steel industries, the tightening of funds has had an impact on new real estate construction and land purchases, but under the background of maintaining good sales, relatively low inventories, and large construction volumes, real estate investment has fallen slowly. As the issuance of special bonds accelerates, infrastructure investment is expected to pick up in the later period. Considering the contraction of urban investment bond financing and the decline in capital leverage, it is difficult for infrastructure to grow explosively. The prosperity of the manufacturing industry has gradually slowed down, but as the lack of cores in automobiles improves, fiscal expenditures accelerate, and cost pressures ease, the overall situation will not deteriorate significantly. The abolition of export tax rebates will have a certain impact on steel exports, but in the context of a good recovery in overseas demand and a large domestic and foreign price difference, it is unlikely that exports will return significantly. On the whole, we expect steel demand to remain resilient in the second half of the year. Due to the high base in the same period last year, it will decline slightly year-on-year.
Looking ahead, as the supply contraction is expected to quickly cool down, the profit per ton of steel benefiting from the potential policy dividend will drop significantly from a high level. The premium structure may be difficult to maintain, and steel prices are still under pressure in the short term. In the medium term, the overall demand for steel is still supported, and there will be no obvious negative feedback between the various varieties of the industry chain, and more profit redistribution. After the pessimism is released, it is expected that the steel price will turn into a range of fluctuations, and the operating range is roughly the same as in early June. In the future, we will focus on the change in output after policy correction, the intensity of demand in the upcoming peak season, and how top executives balance their goals such as carbon neutrality, supply and price stability. Different policy priorities will still be important driving factors for the phased market.
He Jianhui Investment Advisory Number: Z0000586
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