Steel prices stabilize and consolidate the future market trend is confusing

As the steel production exceeded expectations in the first two months of this year, steel stocks rose sharply after the Spring Festival. The domestic steel market turned around from mid-February to mid-March. During the month-long decline, steel prices declined. There was almost no decent adjustment, and the average steel product fell by an average of over RMB 300/t. After the end of March, steel prices stabilized and stabilized, but the future trend is puzzling.

In the second and third months of this year, several major international events have occurred. First, political instability has occurred in some countries in the Middle East and North Africa. The Egyptian government collapsed and Libya was bombed by international coalition forces. International crude oil prices jumped to the $100/barrel platform. Second, Japan suffered an earthquake and tsunami, followed by a nuclear leak, which caused the Japanese economy to suffer heavy losses. Industrial production was greatly affected, and steel production was also significantly reduced. Not only that, the uncertainty of the global economy this year is more than ever before. On the one hand, the United States still implements a very loose monetary policy to stimulate the continued recovery of the domestic economy, promotes global inflation expectations to continue to rise, and commodity prices continue to rise for developing economies. Bring great inflationary pressure. On the other hand, the current European debt crisis is still deepening. The sovereign ratings of Greece, Ireland, and Portugal are still being lowered, and the fiscal tightening policy in the Eurozone continues. China's economy is also facing tremendous pressures of possible high inflation and low growth. Policy tightening is the dominant direction in the future, but this has caused great uncertainty in the direction of the steel market.

Looking at the medium and long-term trends, the pressure on the domestic steel market is obvious. The first is the huge pressure from supply release. In January and February, the average daily output of crude steel in China reached 193 and 1.94 million tons respectively, equivalent to over 700 million tons in the whole year. The scale of production, and in terms of market expectations, this year's domestic consumption plus export demand, 700 million tons is an excessive figure. Under the current market conditions, iron and steel production does not yet have the conditions for a significant reduction in production. In the future, supply will continue to face the pressure of excess resources. Second, judging from the domestic and international situation, the uncertainty of the global economy in the future is relatively large. Despite the current good performance of the United States economy, the European economy may be plagued by the debt crisis and there will be a tendency of low levels in the future. The Japanese economy is affected by the earthquake and it is difficult to improve in the short term. Europe and Japan are the first and third largest destinations for China’s foreign trade exports. China’s exports in the latter period may decline, which will have a negative impact on the Chinese economy. Third, in order to cope with high inflation, China is adopting a tightening policy. Real estate regulation is not expected to relax during the year. Major investment projects in various regions have been compressed, and monetary policy has continued to tighten. In April, we did not rule out further interest rate hikes. Judging from these factors, China's economic growth this year will surely slow down, consumption growth will decline, and the steel market will bear the pressure of weakening demand.

However, in terms of the short-term market, its supporting power is still strong. First, the 3-5 months of each year is the period of concentrated release of consumption during the year. The allocation of industrial enterprises and the construction of construction projects make the short-term market transactions relatively robust and the market prices have strong support. Second, the political situation in the Middle East and North Africa caused international crude oil prices to exceed US$100/barrel, which aggravated global inflation expectations. As the price of crude oil continues to rise, international commodity prices, which have already shown signs of adjustment, have once again seen a high rise. International iron ore prices as raw materials for steel have remained high, supporting the steel prices. Third, as the world’s major steel exporter, Japan’s earthquake, Japan’s steel production decline and future reconstruction will lead to tight global steel supply expectations, coupled with the expansion of US demand, making the recent international steel prices have been operating at high levels, domestic steel The price has formed a big gap with the international steel price. Therefore, China's future steel exports will have an expanding trend and will have a positive effect on domestic steel prices. Fourth, in the short-term, the overheating of China’s economy last year had a certain inertia at the beginning of this year. The macroeconomic data for January and February were relatively good, especially since investment remained at a high level, bringing more optimistic expectations to the current market. Fifth, the rebar market and the spot market have fallen sharply over more than a month. There are certain adjustment requirements. The technology needs to be revised. The majority of inventory resources in the spot market have losses. Therefore, the mainstream will of the ** and the spot market continues. The kinetic energy of the decline is not strong.

Therefore, from the above analysis, it is necessary for the short-term or April steel market to adjust upwards. However, this upward root is not solid, and the risk of future downside is still large. We must remain vigilant.