The steel market is showing positive signs of recovery, the August market may soar

Looking back at the July market, although July was the traditional off-season for steel consumption, the demand for steel in July this year did not show a significant contraction trend. The new order index was 49.8%, a decrease of 1.7 percentage points month on month, slightly below the theoretical critical point, indicating overall stability in market demand.

The reason for this is that on the one hand, the slow release of demand in the early stage has been slightly delayed, and on the other hand, as the physical workload of some policies is reflected by the end of the year, downstream demand confidence has also been slightly boosted compared to the early stage. Therefore, although the high temperature and rainy weather in July has had an impact on the operations of various construction sites and factories, steel demand still has some support, and the off-season effect is not obvious.

Although the rising prices of raw materials have brought some cost pressure to steel mills, it also reflects the rebound in steel demand, which is a relatively positive signal in the current situation of high operating pressure in the industry.

Furthermore, the institution predicts that the “level control” of crude steel may be implemented in the near future, and there is an expectation of a reduction in national steel production in the next August to December; At the same time, we have learned from the fund market that the current valuation of the steel sector is at the bottom, and the holdings of sector funds are at a historical low level, with significant room for upward recovery.

According to the analysis of the reasons by China Steel Network Information Research Institute, firstly, the expectation of strong raw materials is reversing, and the cost is moving down to improve the profitability of the steel plant. Secondly, the scope of economic recovery is expanding, and endogenous momentum is gradually increasing. Third, under the low Base effect, the year-on-year profit reading will pick up significantly. Overall, the industry is currently at the bottom of profitability and valuation, with significant room for upward recovery.

Luo Yuandong, Vice President of CITIC, said that the steel industry can be said to be at a low point in the first half of the year, and it is a high probability event for the steel industry to rebound from the low point in the second half of the year. The favorable policies of the Central Political Bureau meeting have laid the tone and pointed out the direction for economic work in the second half of the year. Recently, the country has also introduced a series of policies to stimulate economic development, which are beneficial for the operation and development of the steel industry in the second half of the year.

With the gradual implementation of favorable policies, the steel industry can recover rapidly in at least the fourth quarter. In addition, the country has implemented some macro level controls on steel production capacity, reducing it from the supply side and increasing it from the demand side. The entire industry chain has shifted from destocking to increasing inventory, which is beneficial for the entire industry.

Overall, the demand for steel has remained stable, production by steel companies has steadily increased, raw material procurement activities have continued to recover, and both raw material prices and finished product prices have risen. Due to favorable policies at the end of July, steel companies have also raised their expectations for the future market. It is expected that in August, market demand will expand, with a steady increase in production but limited room for growth. Raw material prices will be relatively strong, and steel prices will fluctuate and rise.