Authoritative Release! Will steel prices rise to 3850 CNY in September?

Looking back on August

Due to the disturbance of the Federal Reserve’s interest rate hike, the US dollar index has jumped up and down, and expectations for stock market and futures capital investment have decreased. Although the steel market briefly rose in August, it has not continued the trend upward trend, and currently has started a volatile adjustment mode. The reason is that, on the one hand, although macroeconomic policies have been continuously increasing in recent times, their positive effects on the steel market are relatively limited. The market has experienced panic after emotional inflation, and the strong expectations have failed to stimulate the market; On the other hand, the lack of substantial improvement in downstream demand has curbed the room for steel prices to climb, leading to a pullback in steel prices due to insufficient momentum after the surge.

According to the data from China Steel Network APP, it is stable, moderate, and weak 

Among the 24 markets for building materials, the average price of 20mm HRB400E threaded steel is 3736 yuan/ton, a decrease of 122 yuan/ton compared to the previous month;

Among the 24 hot rolled coil markets, the average price of 4.75 hot rolled coil is 3961 yuan/ton, a decrease of 114 yuan/ton compared to the previous month;

Among the 23 markets for medium and thick plates, the average price of 14-20mm ordinary plate is 4074 yuan/ton, a decrease of 95 yuan/ton compared to the previous month.

After experiencing the turbulent market since August, entering the “Golden Nine” period, driven by a series of stable growth policies, the macro level will continue to warm up. However, the core driving logic of the market will shift from expectations to reality, and the supply-demand game will become the key to determining the direction of the “Golden Nine” steel market.

Especially influenced by the PMI data of the manufacturing industry released by the National Bureau of Statistics for August, the Purchasing Managers’ Index (PMI) of the manufacturing industry was 49.7%, an increase of 0.4 percentage points from the previous month, further improving the level of the manufacturing industry’s prosperity. The expansion of manufacturing production has been strengthened, and the decrease in inventory of main raw materials continues to narrow. The employment prospects of enterprises are basically stable, and the delivery time of raw material suppliers is accelerating. Market demand has improved, and it continues to remain within the expansion range. This indicates that the overall stable expansion of production and business activities of Chinese enterprises, increasing the demand for steel, and the prominent role of macroeconomic policies as a support.

From a supply perspective

The supply side has shifted from expected production reduction to realistic production reduction. At present, the news on the market regarding the implementation of the “flat control” policy for crude steel production this year has been fermenting for a long time. September is likely to become a key node for the “flat control” policy of crude steel production to move from expectations to reality. At present, some steel companies in certain regions have received a notice to implement the “flat control” policy for crude steel production this year, and it will be implemented starting from September.

Entering September, once policy based production control is fully implemented, it will effectively suppress the impulse to increase production during the peak season, maintain supply at a reasonable level, effectively alleviate the supply-demand contradiction, and promote the upward trend of steel prices. Whether the supply side can contract and the extent of contraction will become the key to determining the price trend of the “Golden Nine Silver Ten” steel.

From a demand perspective 

The degree of demand recovery during the peak season will determine the final height of steel prices. Rising depends on demand, falling depends on costs. Compared to August, as the traditional peak season for demand, “Jinjiu” is expected to see some improvement in downstream demand, but the ultimate strength of demand fulfillment still remains uncertain. As the main contributor of “steel demand”, the operating rate of real estate and infrastructure projects in “Jinjiu” is highly uncertain. If the peak season demand falls short of expectations, there is a possibility of a downward trend in steel prices.

From a cost perspective 

The driving force behind cost support is still present. At present, the overall price of steel raw materials remains strong. On the one hand, the price of iron ore remains firm, shifting from the previous expectation of flat control and production reduction to the logic of real demand. The main contract price of iron ore futures has returned to above 800 yuan/ton; On the other hand, recently, many coke companies in various regions have issued articles to boycott price reductions, and the steel coke game has become increasingly fierce. Cost remains a crucial factor supporting steel prices.

Overall, positive macro policy news continues to emerge, and the policy bottom is gradually emerging. Cost support remains high and is about to enter the “Golden Nine” market. In September, we are facing a situation of mixed bullish and bearish expectations. Macro expectations and costs continue to support the bottom of steel prices, and the supply-demand contradiction in the industry is gradually accumulating. However, the contradiction is not prominent, so there is no need to be overly pessimistic. The space below is not large. The two core indicators that determine the upward height of steel prices are: first, The implementation of production restriction policies, whether molten iron is gradually decreasing, and whether the daily average crude steel production is gradually decreasing. The second is whether there has been a significant improvement in the quality of demand.