Will steel prices soar after the new year?

Many people hope that after the Spring Festival of the Year of the Tiger, the steel market will regain its momentum and repeat the bull like opening of the Year of the Ox, but I suggest treating it with caution.

Let's first review the situation of the steel market before and after last year's Spring Festival. From January to February 2021, with the basic control of the domestic epidemic, the vitality of the real estate market reappeared, and the haze of the epidemic dissipated. People's confidence in buying houses increased significantly, and housing prices steadily rose. Real estate companies accelerated construction progress, and the demand for construction steel increased significantly. Strong demand brought good prices, and steel mills took advantage of the situation. Prices rose rapidly, driving up raw material prices, How can steel prices not rise under cost assistance?

The weak downturn in the real estate market this year has taken over the decline in the second half of 2021, but the pace of decline is becoming increasingly slow. Currently, the overall industry is experiencing a transition from "policy bottom" to "market bottom", and it is expected that this transition period is likely to last for six months to a year. In the short term, the central bank will reduce the 5-year LPR related to personal loans by 5 basis points, compared to two consecutive decreases in the 1-year period, with a cumulative decrease of 20 basis points, Belonging to asymmetric interest rate cuts, although there are good expectations, it is difficult to stimulate the real estate industry to play a crucial role in steel prices after the Spring Festival. Therefore, the rebound in real estate last year, which drove the demand for building materials, may be difficult to reproduce in the first half of this year. In a market lacking demand stimulation, it depends on whether steel prices can return to supply dominance to support price fluctuations.

Let's take our post holiday expectations back and see what kind of environment the market is currently in:

Inventory surface:

With the smooth completion of the 2021 crude steel production control target, steel mills have once again started a resumption of production mode. Surprisingly, factors such as the Winter Olympics and the 30% off peak production limit in Hebei Province did not have a decisive impact on the resumption of steel mills. The daily average production of molten iron has been continuously increasing at a rate of 40000 tons for four consecutive weeks, and based on the overall inventory situation in the market, as of mid January, the social inventory of 5 major varieties of steel in 21 cities has reached 8.74 million tons, an increase of 810000 tons month on month, up 10.2%.

Supply side:

The resumption of production in steel mills across the country continues to be prosperous, with a blast furnace operating rate of 76.25%, an increase of 0.48% compared to last week and a decrease of 12.07% compared to last year. This week, we officially entered the production shutdown phase for the Spring Festival, and there may be room for reduction.

Demand side:

From last week's transactions, it can be seen that the proportion of downstream terminals taking a holiday has increased. In addition, many of the existing released demand is scattered procurement before the holiday, and the absolute volume of demand has significantly declined. In the future, it will enter the Chinese New Year, which is an important holiday before the Spring Festival. The market terminals are basically on vacation, and demand has entered a seasonal market closure stage.

In terms of mentality:

At present, the supply and demand sides have basically completed their winter storage plans, and the current focus has shifted to welcoming the New Year and post holiday market development. Therefore, even if there is any relevant news on the industry or macro level this week, it will be more about the expected changes in the market after the Spring Festival, and the short-term market will mainly wait and see for the arrival of spring.

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