Downstream demand improves stage by stage and steel prices rise again in April

The second quarter was the peak season for the traditional steel market. The trend of downstream demand improved gradually. It is expected that the steel price will also increase. The earnings of steel enterprises will obviously improve. Therefore, the short-term recommendation is to focus on investment opportunities in the steel sector.
The acceleration of the growth rate of steel production As the “Eleventh Five-Year Plan” energy saving and emission reduction tasks are completed, the growth rate of steel production is accelerating. From January 2011, crude steel and steel production broke the chain's monthly decline since April 2010. In January, the daily output of crude steel reached 1.931 million tons. In February, the daily output of crude steel reached 1.939 million tons, which was the highest level in history.

The rapid increase in production also made the contradiction between supply and demand further manifest. At the end of February, the social steel inventory of the five major steel products in the 26 major steel markets across the country totaled 18.53 million tons, a 25.85% increase month-on-month, which has risen for the third consecutive month. The major increase in steel inventories was mainly due to the excessive growth of output and insufficient effective demand.

However, from the view of capacity utilization, the crude steel capacity utilization rate was 94.37% in January and 94.77% in February, which is at a historically high level. Therefore, there is very limited room for improvement in the future and the supply pressure in the second quarter is relatively small. Social stocks began to gradually fall after hitting a record high of 18.9 million tons in March.

Safeguarding the Housing and Steel Demand Highlights In January-February 2011, the country’s investment in fixed assets was 1744.4 billion yuan, a year-on-year increase of 24.9%, which was 1.7 percentage points lower than the growth rate in the same period of last year. The manufacturing PMI was 52.2%, down by 0.7% from the previous quarter, and it has dropped month-on-month for the third consecutive month. The investment in real estate development in the country increased by 35.2% year-on-year, and the total planned investment for new projects started dropped by 23.6% year-on-year. In other downstream steel industries, the general equipment manufacturing industry grew by 22.4%, and the transportation equipment manufacturing industry increased by 14.4%, which was 1.5 percentage points and 2.2 percentage points lower than the growth rate in December 2010 respectively. At present, the country’s macro-control is still tight, and the funding side continues to narrow. Commercial bank deposit reserve ratio has reached a high of 20%.

In 2010, the number of all kinds of affordable housing in China was 5.9 million units. In 2011, 10 million sets of affordable housing will be started. In 2011, the number of tasks increased by 70% year-on-year. With 10 million sets of affordable housing, 70 square meters for each floor, and 50 kg of steel reinforcement for each square meter of building, the demand for 35 million tons of construction steel will be driven in 2011~2012. It is expected that affordable housing will start gradually in the second half of this year, which will drive at least 180 billion yuan of construction steel demand.

In April, steel prices may rise again. From January to February of 2011, the steel price continued the rebound trend since August 2010. In addition, the steel price continued to rebound after the cost factor pushed forward. The maximum rebound rate from the August low to mid-February is as high as 23%. As the substantial release of crude steel production in January and February suppressed the rise in steel prices, the domestic steel price continued to fall back from late February.

China's imports of iron ore rose from September 2010 all the way to February 2011, an increase of up to 23.7%. After the fall in steel prices and the fall in demand for iron ore in the Japanese earthquake, the price of imported iron ore began to fall, but the long-term price of iron ore will continue to rise in the second quarter. It is estimated that in the second quarter Vale of Carras grade 66% fine ore agreement ore price will be US$199/dry ton, which is 172 US dollars/ton compared to the first quarter, and is expected to increase by 15.9%; 62% grade BP fine ore price About 170 US dollars / ton, the chain rose about 34%.

The second quarter is the peak season for traditional steel demand. Under the influence of demand growth, inventory decline, and iron ore price increases, it is expected that steel prices will perform better in the second quarter than in the first quarter.