China's steel market is mixed

In recent years, a variety of factors have made China's steel market mixed, and the strong situation in the near future remains the same.

First, the main concerns: the economic downside risks increase domestic and international economic downside risks have increased significantly, resulting in lack of demand, lack of confidence, has become the biggest haze over the current Chinese steel market. This economic downside risk is mainly reflected in the following aspects:

1. The European debt crisis lacks concrete and effective solutions The worsening European debt crisis, if not solved well, spreads, will inevitably lead to the collapse of the euro zone, causing a more serious recession in the world economy. Although the major economies of the world have reached a consensus on their seriousness, there are no quick, concrete, and effective measures on how to solve the details of the debt crisis. In particular, where did the European Financial Stability Agency's bailout funds come from? Until now, none of the G20 countries have promised to directly inject capital, and they are still "bargaining." At the same time, the problems of debt default and financial crisis triggered by the “returning of new debts to old debts” appear from time to time and spread to core countries. Italy’s government debt is 1.9 trillion Euros, which is 5.6 times that of Greece and far exceeds the total amount of existing rescue funds of the European Financial Stability Agency. Shortly afterwards, Italy will have 400 billion euros of debt due, large debt defaults, and financial insolvency risks. Affected by this, the yield of the recent Italian government bond has soared, surpassing 7.4% of the death toll, causing the global stock market to tumble. Before these problems were solved well, the atmosphere of panic was filled with investors' lack of confidence and their concrete actions. The world economy was unable to recover. To this end, the International Monetary Authority will reduce its global economic growth forecast for the next two years by 0.3% and 0.5% respectively, both to 4%. The economic slowdown has indeed become a global issue.

2. The risk of a “hard landing” in China’s economy has not yet been completely eliminated. Under the general environment of global economic slowdown, the Chinese economy cannot of course be left alone. Although China’s economic growth rate is still around 9% at this stage, it is envied by other economies, but from the perspective of development trends, it is not optimistic.

The first is that the worst situation in export trade has not yet arrived. The International Monetary Committee has reduced the world economic growth by 0.5% in 2012, which will reduce the global trade volume by 3-4 percentage points. It is expected that the export situation in China in 2012, especially in the first quarter and the first half of the year, will be even more severe. The newly announced October China PMI index was 50.4%, down 0.8% MoM, setting a new low since February 2009. In the sub-index, the volume of new export orders has shrunk significantly. At the 110th session of the Canton Fair, which was opened shortly before, export orders from Europe and the United States dropped sharply. Actual transactions dropped by 19% and 24% respectively year-on-year, which has already shown such signs. It is expected that as the European debt crisis continues to ferment, China’s exports to emerging markets will also decline, resulting in an overall impact on China’s exports and making its actual export value (eliminating the negative growth of price increase factors. This should not be overlooked.)

Followed by the important pillar of domestic demand - the worst situation in the real estate situation has yet to come. The real estate transaction that has lasted for more than one year has shrunk sharply. The expected fall in property prices is bound to seriously affect the follow-up construction funds of developers, and the investment willingness has plummeted, leading to a significant reduction in new construction projects and actual construction volume. According to statistics from the National Bureau of Statistics, in October, the national real estate investment decreased by 11.6% from the previous month, the area of ​​commercial housing sales fell 26.9%, and the area of ​​new housing starts fell by 20.8%. Some people think that the year-on-year growth of real estate investment in 2012 will see a steep drop. As the real estate industry involves a wide range of industries, affecting dozens of major industries in China, affecting nearly 60% of end-use consumer goods, real estate investment and construction area is seriously shrinking, superimposed with the export downturn effect, and other aspects of consumption (such as the suppression of automobile purchase restrictions, etc. If several major engines stall at the same time, it may become the final blow to the “hard landing” of the Chinese economy. Although this worst situation does not necessarily occur, its risk has not completely disappeared and cannot be taken lightly.

3, iron ore prices fall, open up the steel market more drop space as iron ore price increases for the Chinese iron and steel enterprises is not entirely "bad", iron ore price cuts are not necessarily "profitable." If the world economy becomes more severely declining in the future, the iron ore that oppresses the international market will further decline, which will open up a new space for a more drastic drop in domestic steel prices. As a result, Chinese steel companies suffered more serious losses, far surpassing the iron ore price cuts and causing real losses.

Second, the warming basis: macro-control policy to promote supply and demand to improve relations with the gradual emergence of a worse situation, market prices further bottoming out, the country's macro-control policies and its market supply and demand will change accordingly, and jointly build a stable and warming basis for the steel market.

1. "Ensuring growth" has once again become the primary objective of regulation. Domestic and foreign economic growth has slipped too quickly. Unemployment has increased, and it is bound to oppress the price temporarily. Affected by these three factors, it will make "guarantee growth" once again become the preferred target of the world's macroeconomic policies, including China, while suppressing price increases will be placed at a secondary position. Hu Xiaoxuan pointed out at the G20 meeting not long ago: "In the three goals of being strong, sustainable, and balanced, ensuring that strong growth is the top priority." Under this major policy, it is expected that macro-control will gradually adjust to loosening. At the State Council Executive Meeting held in late October, it also gave up the reference to “anti-inflation as the primary goal”, marking that the focus of the policy has shifted to maintaining growth, which is conducive to increasing demand for steel products.

2. The trend of gradual loosening of monetary policy “guarantee growth” has also begun to become global action, which is mainly reflected in loose monetary policy. After the ECB raised interest rates twice during the year, it suddenly announced on November 4 that the benchmark interest rate was lowered from 1.5% to 1.25%, and it is expected to continue to cut 25 basis points in the future to reach 1%. In addition, countries such as Brazil and Australia have also cut interest rates; because of the economic downturn, the Fed’s meeting decided to continue to maintain its low interest rate policy; Japan has frequently intervened in the appreciation of the yen. Obviously, the decision makers of the world's major economies have given priority to maintaining growth and turning to loose monetary policies between anti-inflation and guaranteed growth. Affected by this, China's monetary policy will also tend to be gradually relaxed. It is expected that the “two downs” will enter the agenda, first of all, to reduce the deposit reserve ratio and ensure that the real economy, especially the SMEs, gets more.

3. Excess liquidity Although the capital chain at home and abroad has been broken and the liquidity is tight, news of bankruptcies has been seen from time to time in some newspapers. However, as a whole, the world today is still "dry firewood everywhere," and inflation is raging. While western governments have high debt, their overseas companies still have large sums of money and seek investment opportunities worldwide. The huge amount of “hot money” that has poured into China in more than a year is proof. According to relevant information, before the financial crisis of August 2008, U.S. banks had a bank reserve of 90 billion U.S. dollars, and U.S. bank reserves are now 17 times that period. From the domestic point of view, the proliferation of civil society in some areas has almost become China's second financial system, and it has maintained the production and operation of many enterprises outside the system. It can thus be seen that what is lacking now is not capital, but investor confidence and investment targets. Once the situation changes, there will be profitable investment opportunities. A lot of money will come from all sides, resulting in strong buying demand and pushing up commodity prices. It is precisely because of this that the oil price in the international market once again climbed to the US$90/barrel price level, and it is possible to leap to the hundred yuan/barrel mark, and it is under the shadow of the panic of the world's second recession. All of these will also be transmitted to steel and its iron ore market.

4, the release of production capacity was inhibited by the decline in the market price caused by the loss, forcing steel companies to reduce production. According to data from the China Steel Association, the average daily output of crude steel in the country in mid-October 2011 was 1,790,800 tons, which fell by 2.9% during the first half of the year and fell below 1.9 million tons for the first time since March of this year. The weakening of the release of production capacity will help to balance supply and demand and promote the recovery of steel prices.

III. Conclusion: The steel market is almost in the weak and still strong. Overall, at present and in the future, the Chinese steel market continues to be dominated by the above-mentioned bearish and bullish factors, and there has been no major change in the weak and strong pattern.

In the near term, due to the panic atmosphere triggered by the European debt crisis and the risk of a “hard landing” in the Chinese economy has not completely subsided, the steel market will also operate weakly, and does not rule out the deterioration of the European debt crisis and the Chinese real estate market diving, jointly pressing the steel prices a new one The possibility of the third wave falling, even reaching or approaching the level of the 2008 financial crisis, requires a sense of risk in response to a worse situation.

On the other hand, as the negative factors are exhausted, “broadly strong” bullish interest has gradually emerged, gradually occupying a dominant position, especially global inflation caused by unconventional debt reduction, promoting the steady rebound of steel prices, shocks upwards, and will cross the previous history High points, we must also be forward-looking, closely observe, and choose the right direction for investment.