SUMMARY OF THE MARKET IN 2018
Steel prices in China have increased sharply in the past year, especially in the first half of the year based on steel industry restructuring, large-scale supply cuts, and policies to promote infrastructure from the Government.
Since 2017, China has strictly implemented policies to cut supply, improve the quality of the steel industry, to meet environmental standards such as closing induction furnaces, cutting production in the winter. China has closed down the total induction reactors with a capacity of 120 million tons of construction steel until mid-2017. Next is the winter production cuts in late 2017 and 2018. This leads to the current speculation pushed steel prices up.
The rise in steel prices stimulates the increase in production to make a profit. In the 2018 winter environmental campaign, the Chinese government allowed provinces and cities to decide on the level of output reduction, instead of applying the same level as 2017. As a result, the country ‘s steel output is linked. continued to reach new records in the months near the end of the year while demand showed signs of decline due to stagnant economy. Factories seem to be producing at full capacity, resulting in a record 928 million tons of steel output, while consumption is about 820 million tons, mainly from infrastructure construction and real estate. and manufacturing machines.
Steel prices have risen, while raw material prices have plummeted to help factories gain huge profits. It can be said that last year was the golden age of the Chinese steel industry when profits generated a total of 9.9 billion yuan (59.6 billion USD), an increase of 37.8% compared to 2017, data from the Reform and Development Committee. National Development said.
However, the situation changed rapidly in Q4 due to the stimulus created by the reduction in supply and the closure of induction furnaces fading, plus the easing move to support China’s economic growth. . Production has increased during the period of high steel prices, which have gradually reached over demand that tends to decrease in the last months of the year in China. After reaching a 7-year high at the end of August, Shanghai futures prices, a widely used steel product in the construction industry, fell more than 13% in November, making profit margins. The industry is under great pressure at the end of the year. Rebar export prices and commercial HRC prices have also plummeted more than 100 USD / ton from the beginning of the year to 464-469 USD / ton FOB and 485-495 USD / ton FOB in November 2018.
MARKET OUTLOOK Q2 / 2019
Entering 2019, the negative factors of 2018 have never been resolved, expected to continue to enrich the Chinese economy.
_ First, the trade war between the US and China, initiated in late March last year. After the imposition of hundreds of millions of dollars in tariff barriers, the two sides agreed to sit at the negotiating table at the end of February. Although the two sides are currently in a truce, and have made significant progress in the negotiation round, it has just ended, with the delay of tax increase from 10% to 25% after March 1 but still risk of outbreaks at any time. The current period can be considered as temporary avoid collapse, long tension, and continued instability for the steel industry.
_ Second, the challenge from the deceleration of China’s economic growth, especially in the first half of this year affected investors’ sentiment. China’s GDP growth has gradually decreased in 2018 to 6.6%. This is also the lowest level since the 2008-2009 financial crisis due to the impact of the US-China trade war and the impact of this war will also put pressure this year. In a recent report, HSBC bank forecast that escalating trade war could take 0.7 – 0.8% of China’s GDP growth in 2019. Or follow Nikkei’s latest Chinese economists survey This country’s economic growth is forecast to fall to 6.2% this year, from 6.6% in 2018.
Third, the speculative effect ceases due to the impact of supply cut factors as previous years are no longer strong. The reason is that the country has achieved the goal of eliminating 150 million tons of steel capacity per year in the period 2016-2018, so the cut is no longer strong and the price is difficult to increase dramatically like the last 2 years.
_ Fourth, high supply puts pressure on market prices. Although in the past year, Beijing has continuously announced policies to tighten supply in key steel production areas to protect the environment, including a policy to cut winter production for the second year in a row. However, the fact shows that steel production still increases and sets a new record. Specifically, production in 2018 increased 24 million tons compared to 2017 to 831.7 million tons and in 2019 continued to increase nearly 100 tons to 928 million tons. Therefore, this year, high output continues to be a concern, especially when supply cut policies are said to be more relaxed. Accordingly, inventories also increase, putting pressure on prices.
_ Thursday, increasing competitive pressure in China’s main destinations, especially the Southeast Asian market is becoming increasingly cramped. These include the main competitors such as Turkey, India, Ukraine, Qatar .. in which Turkish steel is particularly competitive, putting pressure on prices.
_ Sixth, demand is expected to be softer due to tight financial conditions. In contrast to 2018, demand for real estate and automobile manufacturing will weaken. The weak domestic demand is reflected in the fact that the country is trying to increase exports to reduce the domestic market by reducing taxes. In a recent development, China has also abolished export tax on square billets from 01/01/2019 to promote export.
_ Seventh, global protectionism increased, the world economy slowed down, putting pressure on the Chinese steel export market. Large countries and territories such as the US, EU, India and ASEAN have applied tariffs and quotas for imported steel. This will hinder China’s ability to export steel, putting pressure on prices.
_ Firstly, Beijing will continue to launch measures to stabilize the economy. Policies can include cutting more taxes, speeding up the issuance of local government special bonds, promoting infrastructure investment – essential for the steel industry. Earlier this year, 418 billion yuan bonds were issued, almost double the number issued between January and March 2018.
_ Secondly, the steel industry continues to restructure, cut supply, prohibit new capacity expansion. The government will support important areas in reducing steel capacity this year, pledging to deepen the supply side in the industrial sectors. Although China has achieved the goal of eliminating 150 million tons / year steel capacity in the period 2016-2018, some provinces still have not reached the target of capacity reduction, with a total of about 20 million tons / year, According to the Ministry of Industry and Information Technology (MIIT). Therefore, these provinces will be supported to achieve their goals in the period of 2019-2020.
China will “prohibit” the expansion of new iron and steel projects in 2019, as well as primary aluminum coke and aluminum in some important areas, including the Beijing – Tianjin – Ha delta regions. North and Yangtze River were inherently restricted in 2018.
Third, China continues to increase exports and restrict imports to reduce pressure on the domestic steel industry. For example, scrap steel and aluminum will be transferred from an unlimited import list to a limited import list. Meanwhile, China will not impose export taxes on 94 items next year, including fertilizer, iron ore, slag, coal tar and wood pulp.
_ Fourth, production costs increase. Pollution problem is always the sorrowing problem of China, so this year, the steel industry of this country will continue the process of restructuring and tightening regulations and standards on environmental protection and consumption. energy, … makes production costs increase. Besides, the cost of raw materials such as ore, scrap, coal increased compared to the previous time based on tight supply through regulations restricting exploitation and import …
_ Thursday, demand for steel from the real estate sector is expected to grow and support steel prices. In 2019, the NDRC plans to restart other infrastructure projects to stimulate economic growth. The government also plans to start construction of 165 projects in the 13th Five-Year Scheme as soon as possible. Therefore, steel consumption in China will continue to increase in 2019.
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