In the first half of 2020, affected by coVID-19 prevention and control, the downstream steel industry generally delayed the start of production and resumed production successively after March. The steel market demand was sluggish in the first quarter, while the demand improved in the second quarter, with the inventory decline and the steel price rising, but the overall price level was still lower than that of the same period last year.

First, the first half of this year steel market price trend characteristics

In the first half of the year, domestic steel market prices fell first and then rose, as of the end of June steel composite price index than the end of last year fell 2.9 percent, 5.9 percent than the same period last year.

1. From the perspective of time: prices in the first quarter fell month by month, with the biggest drop in February;
Prices fell first and then rose in the second quarter, with the biggest increase in May.

In January, although the traditional consumption is low season, the market has not been affected by the epidemic, and prices remain relatively stable.
In February, the epidemic quickly spread to the whole country and most enterprises were in a state of suspension of production. The epidemic had a far greater impact on the steel demand end than the production end. The steel market was oversupplied and the price fell deeply.
In March, the epidemic situation in China was basically brought under control, and the downstream industries resumed work and production one after another. In order to achieve good results in this year's economic and social development, the state introduced relevant policies and measures, and the decline in steel prices was somewhat narrowed.
In April, due to the spread of the epidemic in Europe and the United States and the decline of domestic futures, market expectations deteriorated, and steel prices continued to fall and hit the bottom.
In May, China achieved phased results in epidemic prevention and control, with large-scale recovery of production in downstream industries, increased demand for steel, decreased inventory, and a strong rebound in prices. At the end of May, the CSPI steel composite price index rose by 4.49% month-on-month.
In June, steel production continued to grow, due to the southern plum rainy season, construction steel demand slightly affected, steel destocking rate slowed down, steel price increase narrowed, at the end of June, CSPI steel composite price index rose by 2.03% month-on-month.

June 2019 - June 2020 steel composite price index month-on-month rise and fall chart

2. From the perspective of varieties: the reduction of plate is greater than that of long material

At the end of June compared with the end of last year: CSPI steel composite price index is 103.01 points, below

Down 2.91%.
Among them, the long material price index is 107.4 points, down 2.1%;
Plate prices

The index was 100.77, down 3.62%;
The length material decreased by 1.42 percentage points less than the plate material.

At the end of June compared with the same period last year: CSPI steel composite price index fell 5.88%;
its

Medium, long material price index fell 7.62%;
Panel prices decreased by 4.22%;
There are more long pieces than sheets

Down 3.4 percent.

3. Eight major steel products are mainly lower

At the end of June, compared with the end of last year, the price of eight steel varieties fell by one liter.
Among them, galvanized board decline is the largest (mainly specifications, not all price factors);
Cold rolled sheet and seamless pipe declined greatly, dropping 240 yuan/ton and 205 yuan/ton, respectively, by 4.45.4%;
High line, Angle steel and hot rolled coil fell by 94 yuan/ton, 124 yuan/ton and 85 yuan/ton respectively, by 2.2-3.2%.
Rebar has a small drop, 34 yuan/ton, a drop of only 1.55%;
In the thick plate a flower, the price rose 52 yuan/ton, up 1.37%.

Price change chart of main steel products from June 2019 to June 2020

Two, the domestic steel market price drops first then rises the factor analysis

1. The downstream industry starts later, and the steel demand starts behind, but gradually develops better

Affected by coVID-19, China's economic activity was limited in the first quarter, with industrial production, investment and consumption all declining significantly.
In the second quarter, with the improvement of the epidemic situation in China, various economic indicators gradually improved, showing an increasing trend every month.
Fixed-asset investment excluding rural households fell 6.3 percent year on year in the january-May period, according to the National Bureau of Statistics.
Infrastructure investment fell by 6.3% year on year.
Investment in real estate development fell by 0.3% year-on-year, including a 12.8% drop in new housing starts.
From January to May, the value added of industries above designated size fell by 4.4% year on year.
In the main steel industry, automobile output fell by 24.1 percent year-on-year, metal smelting equipment fell by 8.9 percent, and excavators rose by 14.7 percent.

Key indicators related to steel demand, such as property development investment, infrastructure investment, industrial production and auto output, all showed year-on-year growth in May.

2. Steel production capacity has been released quickly, and the pressure of oversupply still exists

According to the National Bureau of Statistics, the output of crude steel, pig iron and steel in the first five months of this year was 411.75 million tons, 355.99 million tons and 488.19 million tons, up 1.9%, 1.5% and 1.2%, respectively.
In May, China's output of pig iron, crude steel and steel was 77.32 million tons, 92.27 million tons and 11.453 million tons, up 2.4 percent, 4.2 percent and 6.2 percent, respectively.
Daily output of crude steel was 2.976,500 tons, a record high, with a month-on-month growth of 5.02%.
According to customs statistics, in May, the country exported 4.4 million tons of steel, imported 1.28 million tons of steel, the net export of steel fold coarse steel 3.25 million tons, a year-on-year decline of 0.4%.
According to the above data, the average daily supply of crude steel in May was 2.87 million tons, up 8.3% month-on-month.
As downstream demand is still recovering and steel production capacity is released quickly, the pressure of oversupply in the market still exists.

3, iron ore prices rose high, other raw materials fell after the rise and steel trend convergence

Affected by the epidemic, steel production and demand were weak and then strong, and the price of raw steel fuel also showed a trend of decline and then rise.
At the end of June compared with the end of last year, in addition to iron ore, coking coal, scrap steel, pig iron and billet

Prices fell, by 8.5%, 2.5%, 3.5% and 0.8% respectively;
Coke is stable;
Ore prices bucked the trend, with imports and domestic mines up 8.8% and 12.1% respectively.

What is noteworthy is that: the proportion of iron ore imports, the largest proportion of steel raw materials, the price has been high firm this year, while the overall decline in steel prices, steel companies squeezed both ends, the level of profitability significantly weakened.

According to the data from the National Bureau of Statistics, the black metal smelting and rolling processing industry in The first five months of This year had an operating income of 2546.95 billion yuan, down 6% year-on-year, and a total profit of 49.33 billion yuan, down 57.2% year-on-year.

4. Delayed demand and blocked transportation resulted in substantial increase of steel inventory in the first quarter and accelerated destocking in the second quarter

During the epidemic period, transportation was blocked and demand was suspended. In mid-March, social steel stocks reached a record high of 32.03 million tons, up 247.1% over the beginning of the year.
Since March, the steel downstream industry has gradually resumed production and opened up the road gradually, the demand of the downstream steel industry has accelerated, the steel inventory has been significantly reduced.
By the end of June, the country's social inventory of five varieties of steel had dropped to 17.64 million tons, but it was up 92 percent from the beginning of the year.
It is down 44.5% from its all-time high in mid-March and still 26% higher than a year ago.

Third, the second half of this year steel market trend research

(1) The steel market in the second half of the year still has room to rise, ups and downs are unlikely

1. China's coVID-19 prevention and control situation is stable, and market demand is expected to further recover

In the second half of this year, the state continued to step up the implementation of macro policies, and adopted a prudent monetary policy that was more flexible and appropriate. We introduced the "six guarantees" policy on the basis of the "six stability" policy, stressed the need to adhere to the general tone of the seek improvement in stability work, launched a number of major projects, and accelerated the development of traditional infrastructure and new infrastructure such as 5G and artificial intelligence.
We will actively expand effective investment, renovate old residential areas, strengthen investment in traditional and new infrastructure, promote the upgrading of traditional industries, increase investment in strategic emerging industries, and stimulate private investment.
Later domestic market demand is expected to recover further.

2. Various measures to stabilize growth have been implemented, and financial policies have eased the financial pressure on enterprises

In the first half of this year, policy makers introduced a number of counter-cyclical adjustment policies.
This includes cutting the required reserve ratio for several times in a row, expanding the issuance of special bonds, continuing to cut taxes and reduce the burden of taxation, and giving centralized approval to investment projects.
This year, special debt is scheduled to reach 3.75 trillion yuan, an increase of 1.6 trillion yuan over last year.
With the continuous implementation of the policy, the stimulus to economic growth in the second half of the year will have a greater effect.

The Ministry of Finance (MOF) recently released its national debt issuance plan for the third quarter, stipulating the bidding dates for the issuance plan of bookkeeping interest-bearing national bonds, bookkeeping discount national bonds, savings national bonds and special national bonds issued to combat coVID-19.
Earlier, the Treasury Department of the Ministry of Finance said that a total of 1 trillion yuan of special national debt will be issued in 2020 and will be completed by the end of July.
A special bond issue of 290 billion yuan in June means 710 billion yuan will be issued in July.
From the perspective of investment direction, according to the local special debt all used for major infrastructure projects, so special debt may be added infrastructure related projects.

In addition, the state should give full play to the traction and driving role of financial policies such as refinancing and rediscount, deferred repayment of principal and interest on loans, unblock the transmission mechanism, ease the difficulty and cost of financing, and provide precise financial services for small, medium-sized and micro businesses and the development of the real economy.

3. The State has issued key work points for steel and iron to reduce overcapacity in 2020, so as to create a good environment for the smooth operation of steel and iron

On June 18, six ministries -- the National Development and Reform Commission, the Ministry of Industry and Information Technology, the National Energy Administration, the Ministry of Finance, the Ministry of Human Resources and Social Security and the State-owned Assets Supervision and Administration Commission of the State Council -- issued the Notice on Reducing Overcapacity in Key Areas by 2020.
In order to further deepen the supply-side structural reform of the steel industry, accelerate the high-quality development of China's steel industry, promote the structural adjustment, transformation and upgrading of the steel industry, and do a more scientific and effective job in reducing steel overcapacity by 2020.

To ensure the full completion of the set goals and tasks;
"Zombie enterprises" should retire;
We will withdraw from outdated production capacity in accordance with the law and regulations, strictly implement laws and regulations on safety, environmental protection, quality, energy consumption, water consumption and other relevant industrial policies, and step up enforcement of laws and regulations on violations of laws and regulations in the steel industry and inspections to meet standards.
To prevent the resurgence of "floor steel" and the resumption of production of excess capacity;
New production capacity is strictly prohibited;
We will strictly ensure that production capacity replacement and project registration are carried out, and prohibit local governments from filing new steel smelting capacity projects under any name.
With the implementation of various targets and tasks among departments at all levels and market entities, the pressure on steel overcapacity will be alleviated.

The world economy is in recession and global steel demand is falling, putting pressure on the Chinese market.

On June 24th, the international monetary fund (IMF) released a new phase of the world economic outlook report, the global economy will shrink by 4.9% this year, is expected to think COVID - 19 outbreak of the negative impact of economic activity more than expected in the first half of 2020, the recovery is expected to more slowly than previously forecast, forecast in April - 3% growth to 1.9% cut again.

Global steel demand is expected to shrink by 6.4 per cent this year, according to a short-term forecast published on the 4 June by the World Steel Association.
In addition to the impact of international trade protection, China's steel export will be more difficult, will increase the domestic market supply and demand balance pressure.

To sum up, after the epidemic, China's steel industry will see a "double boom" in supply and demand, and steel prices will rise steadily, but the uncertainty of the international situation and the financial market has intensified the volatility of the domestic market.

Forecast this year half steel composite price index forecast in 98-105 points;
The average price of rebar 1620 is 3,600-3,900 yuan/ton;
The average price of hot rolled coil 3MM is 36503850 yuan/ton.

(ii) Risks in the market in the second half of the year

After January and March, with the resumption of work and production of downstream enterprises, the operation of blast furnaces and electric furnaces in iron and steel enterprises continued to increase. In May, the output of crude steel and steel products reached a record high, and there was a risk that the steel production capacity would be released too quickly.

2. July-august is the traditional off-season for consumption. Rainy season, flood, summer high temperature and other factors may have a certain impact on steel demand.

3, the price of imported iron ore continues to rise, and steel prices deviate from the trend.
The price of imported iron ore is up 12.1% this year, while steel prices are down 2.9%.
Seriously erode the benefits of iron and steel enterprises.

4. As the international situation became more uncertain, the OECD in June lowered its forecast for global economic growth in 2020 to minus 6% from minus 2.4%.
As the epidemic is still not under control, financial market shocks, it is expected that many economies in Europe, The United States, Japan and South Korea may be hit hard, steel overseas demand will be significantly affected;
In addition, China's steel export has no price advantage, export difficulty is further increased.

5. The coVID-19 epidemic is spreading around the world and is serious in Brazil, India and South Africa, which may have a certain impact on the iron ore supply chain in the second half of the year. In addition to financial risk aversion and expectation, the chances of high and wide fluctuations in the price of imported iron ore may increase.