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Three uncertainties in the steel market in 2020

Dec. 13, 2019

In the new year, the Chinese steel market is still shrouded in uncertainty, market participants have no clear direction, and the chase caused by fluctuations in the price itself has caused the market to continue to fluctuate widely. There are three main aspects of these uncertainties:

First of all, can the growth rate of steel production become the "end of the crossbow"?

In 2019, the price of China's steel market has declined. It is definitely not that demand is not strong, but that steel supply pressure is too heavy. Among them, the output growth in the first 8 months has exceeded 9%, and the speed has continued to increase. It should be said that due to the improvement of the comparison base, the potential for tapping the potential of technology management and capacity utilization is shrinking. In the new year, the growth rate of China's steel and steel production should converge and fall. If this happens, the pressure on the national steel market supply will be reduced accordingly, and the market price will fluctuate. However, in the context of successive years of strong fixed asset investment in the steel industry, China's steel and steel output may increase by a large margin in 2020, which is sufficient to drown the strong demand brought by countercyclical adjustments. In October this year, the national steel and steel production growth rate fell sharply, can the situation continue? Market participants generally have no idea about this. Based on this, the prospects of the long and short sides and the divergence of market behavior have increased. It is also difficult for China's steel prices to fluctuate sharply in 2020.

Secondly, can the Sino-U.S. Trade negotiations achieve final positive results?

Recently, China-US trade talks have achieved "first-stage results", and market confidence has been encouraged. But this just avoids the further deterioration and escalation of the trade crisis. The previously imposed tariffs are still implemented. Whether the final positive results can be achieved, a comprehensive trade agreement can be reached, and the trade barriers imposed by the two sides can still be completely removed. If the final positive results can be achieved, it will naturally have a great encouragement for the steel market to await breakthroughs. Otherwise, the median price of the market will sink. It must be pointed out that even if the current Sino-US trade talks have achieved positive results, it does not mean that the US-China trade friction has completely ended. Efforts to curb China's all-round rise have become a long-term strategy of the US government. Therefore, the US government "does not count", the US suppression of China will continue, and various "troubles" will be manifested in various ways, and will continue to stir the market situation of Chinese steel in the new year.

Finally, can the fixed asset investment pick up significantly?

Under the severe external demand situation, Chinese decision-making departments are bound to strengthen counter-cyclical adjustments and work hard to stimulate domestic demand. The focus of stimulating domestic demand will focus on expanding household consumption and expanding fixed assets, especially on infrastructure investment. Under such circumstances, it is expected that in the new year, the growth rate of national fixed asset investment, including infrastructure investment, will pick up, or even a more obvious rebound; the growth rate of real estate investment will also remain at a high level, which will promote the steady growth of steel demand. On the other hand, due to various factors, such as the timely start of new projects and the availability of funds, can the actual workload ultimately be formed? It remains to be seen. For example, the growth of infrastructure investment in the third quarter of 2019 was not as good as expected, and the actual workload did not seem to increase much. It can be seen that despite the intensive approval of investment projects by relevant departments, the reduction of quotas, the expansion of long-term debt issuance, and the release of new special debt quotas in advance, etc., there is still some uncertainty as to whether the demand for steel can be finally increased.

Because of the three major uncertainties mentioned above, it is expected that the national steel market in 2020 will be centered around the middle price. For example, the closing price of the main contract for Shanghai futures will be around 3700 yuan, which will continue to fluctuate widely.

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