China's steel prices have stopped falling, stabilized, energy-saving, emission reduction, and downside

November 30, 2018

Steel prices have stabilized, and energy conservation and emission reduction have reduced the space.

We believe that steel prices lacked the power to fall back and stabilized in the future. The main reasons are as follows: 1 Long-term energy-saving emission reductions have caused resistance to steel mills to resume production, and steel production has continued to maintain relatively low levels. The average daily output of hot rolled coils has reached the lowest level since August 2009; 2 the probability of “low season is not weak” is increasing, the market inventory has reached a new low in the year, and continues to fall back to a high probability, we will closely track the demand situation; The ex-factory price of the steel mill is stable and the cost is supported. Despite the high price of the general-purpose carbon hot coil, the ex-factory prices of hot-rolled and cold-rolled coils in December for the past week were reduced by 150-200 yuan/ton, and the high-end varieties remained stable. The rebar upside of the leading steel mills in East China has been in the range of 150-200 yuan/ton. The “slow and slow rise” of steel mills has led to the highest cost in winter storage, and the market is obviously lacking in power.

The liquidity status has not changed.

Although China has raised the deposit reserve ratio twice in the near future, we believe that the relatively loose liquidity status has not changed. The main reasons are as follows: 1 Everbright macro view that the “quantitative easing policy” of developed economies and the “moderately tight” of emerging economies The situation in which monetary policy is playing against each other is taking shape. Faced with the “printing machine” of developed economies, emerging economies face the dual challenges of inflation and hot money, and the policy is dilemma. We believe that the dilemma policy will inevitably make the emerging economies “moderately tight”, but in any case, the overall global liquidity will continue to be loose; 2 Everbright macro believes that although the European debt crisis has caused the short-term trend of the euro to bear a test of sharp decline, As the situation in Ireland becomes clearer, the euro's decline may get a brief respite. The pressure of the largest depreciation of the US dollar is expected to be lifted; 3 the US dollar index has returned to the decline channel in the past week, and the pattern of weak US dollar will continue in the coming period. As the big tone of global loose monetary policy has not changed and the weak dollar pattern, the strength of commodities is a big probability event. 4 As far as China is concerned, Everbright macro believes that raising the reserve ratio twice, it cannot be said that the central bank’s monetary policy is already Tightening, its main purpose is to hedge the role of new foreign exchange funds. The currency environment remains "stable" since August 2009.

The supply is tight and the liquidity is abundant.

According to the data released by the National Development and Reform Commission, in the first three quarters of this year, there are still ten places in Liaoning and other places where energy conservation and emission reduction are more severe. Under such circumstances, many places have adopted temporary measures to limit production and stop production, and the scope has gradually expanded. Our analysis is as follows: 1 The country has not relaxed its energy conservation and emission reduction. As a result, the market resources have been reduced, and the tension has further deepened. According to our understanding, the current steel stocks of second-tier steel mills are more obvious, and the market supply is short-term. It will remain accommodative; 2 the provinces with more energy-saving and emission-reducing situation will be further strengthened, and Shougang Beijing will stop production at the latest in late December, when the monthly volume will be reduced by more than 100,000 tons; 3 In the absence of relaxation of the country's energy-saving and emission reduction policies after long-term, China's steel output is not difficult to recover quickly in the short term, and will even affect the competitive landscape of our steel industry in the medium and long term.

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