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Optimization of industrial structure steel prices may return to a reasonable level this year Abstract: in recent years, China's steel industrial structure has been optimized, mainly reflected in the smooth progress of eliminating backward production capacity, the continuous improvement of industrial concentration and the optimization of industrial layout. In 2017, the supply and demand of China's steel market was basically balanced, and the steel industry was stable and good, with demand better than expected and slightly increased

since 2017, China's national economy has continued to develop in a stable and good trend. The supply side structural reform of the steel industry has achieved certain results, the demand situation has improved, and the production and operation conditions of enterprises have significantly improved, realizing a stable and good development trend. Such a large increase is mainly due to the continuous decline in extruder imports since October last year, especially the complete ban on "ground steel", which not only did not weaken the overall supply capacity of the market, but also through the elimination of excess capacity and the complete ban on "ground steel", China's steel and iron capacity utilization basically returned to a reasonable range

Gu Jianguo, executive vice president of China Iron and Steel Industry Association, pointed out that the steady and positive development trend of the iron and steel industry, as a basic industry in the national economy, benefits from the improvement of the external macro environment on the one hand, especially from the strong promotion of a series of policies and measures such as the country's steady promotion of supply side structural reform, efforts to resolve iron and steel overcapacity, and the complete elimination of "ground bar steel", On the other hand, it is inseparable from the hard work and hard work of the vast number of enterprise cadres and workers in the whole industry. 2018 is a year of continuous improvement for the steel industry, which is full of challenges and opportunities. Opportunities outweigh challenges. However, both "empty" steel and "support" steel are not conducive to the healthy development of the steel industry

continuous optimization of industrial structure

in recent years, China's iron and steel industrial structure has been optimized, which is mainly reflected in the smooth progress of eliminating backward production capacity, the continuous improvement of industrial concentration and the optimization of industrial layout. In 2017, the supply and demand of China's steel market was basically balanced, and the steel industry was stable and good, with demand better than expected and slightly increased. Gu Jianguo, executive vice president of China Iron and Steel Industry Association, believes that the 50million ton capacity reduction task in 2017 has been completed ahead of schedule, and the complete ban of "ground bar steel" is one of the most important "events" in the steel industry in 2017

in 2016 and 2017, China has banned more than 730 "ground steel" enterprises, with a production capacity of about 140 million tons. Although the production capacity of "ground steel bar" is large, its operating rate is "guerrilla", and the actual output of "ground steel bar" is far from the scale of production capacity. It is necessary to dialectically view the impact of "ground steel bar" on market supply. From the perspective of market supply, resolving excess steel production capacity and completely banning "ground bar" are the optimization and improvement of the existing production capacity structure of steel. Banning "ground bar" is not only to eliminate the fallen and irregular production capacity, but also to restore the supply-demand equilibrium pricing system in the steel market, return market competition to benign, and eliminate the disadvantages of "bad money drives out good money". For example, in the past two years, the steel price has achieved a dynamic rise in the rise and fall, reversing the decline for four consecutive years from 2012 to 2015, indicating that the function of price reflecting market supply and demand and regulating supply and demand has been better repaired

insiders analyzed the changes in China's steel industry in 2017: first, the steel industry has ushered in a long-awaited return of value, the trend of finished products and raw materials has been differentiated, and the industry profit margin has been significantly improved, even better than that in 2008. Second, the merger and reorganization of the steel industry has finally started. Third, the price difference of some steel varieties has been pulled to the extreme. For example, the volume difference of futures 01 contract hit a new high of 688 yuan/ton, four times the historical average. Fourth, the performance of the basis "increase and discount" among different varieties is quite different. The thread increases the water throughout the year, while the premium range of coking coal once reached 12%. Different basis reflects the fierce game behind the policy. Fifth, the rebound in external demand for steel has maintained a relative balance between supply and demand

there is still uncertainty in the steel market

at present, China's steel industry has formed a production organization pattern dominated by large enterprises and coexisting with small and medium-sized enterprises. The layout of the steel industry dominated by domestic resources has gradually changed to a strategic layout that integrates international and domestic resources and is close to the market. Some research institutions believe that there is still uncertainty in China's steel market in 2018. First, whether the success of domestic capacity reduction and the elimination of "ground steel bars" can be consolidated. At present, the high price of steel sales, the temptation of high profits of enterprises and the tight local fiscal revenue pose major challenges to consolidating the achievements of de capacity and banning "ground bar steel". 6 The game between the establishment of 16 offices in key cities such as Shenyang, Changchun, Beijing, Guangzhou, Wenzhou, Shenzhen, Xi'an, Chengdu, Zhengzhou, Changsha, Taiyuan, Wuhan, etc. has enhanced the uncertainty of the supply-demand relationship and market trend of the steel market in the new year. Second, whether the oil price in the international market has soared. If the oil price in the international market rises to more than $70/barrel in 2018, it will push up the CIF price of imported iron ore in China and push up the prices of domestic ore, coke and coking coal. Third, whether global inflation is on the rise. At present, the global overcapacity and insufficient demand in many fields have greatly restrained the rise in prices. If U.S. inflation rises, it is bound to have an spillover impact on the global economy, capital and commodity pattern, and eventually lead to a favorable steel market in China

from December 16 to 17, 2017, at the 2018 bulk commodity market Summit Forum, Professor Xu Xiaonian of China Europe International Business School believed that the rise in steel prices in 2017 was not based on demand growth, but on the promotion of monetary policy, inventory replenishment and capacity reduction policies. Now these three factors have changed, and the situation of the steel industry in 2018 is not optimistic

Xu Xiaonian said that since 2016, China's production price index (PPI) has rebounded strongly from the second half of 2016, which is closely related to the sharp rise in steel prices, because domestic steel prices occupy an important weight in the PPI index. There are three main reasons for the sharp rise in steel prices in the past year: first, the central bank has increased the money supply. PPI is highly positively correlated with money supply (M1 in a narrow sense), so the rise in the past year is mainly driven by money, rather than real demand. The second is to replenish inventory. Since China's economy has been adjusted in 2014 and 2015, which has reduced the inventory of enterprises to a record low, many enterprises have begun to replenish inventory in order to avoid affecting production since 2016. The third is the administrative means of "de capacity". The opinions of the State Council on resolving excess capacity in the iron and steel industry and achieving poverty relief and development requires that from 2016, the crude steel production capacity should be reduced by 100million to 150million tons in five years, and new production capacity is strictly prohibited. Since November 2015, with the opening of the supply side structural reform, the steel industry has ushered in a huge change. Xu Xiaonian believes that the direction of capacity reduction is correct. This time, administrative means are used to reduce capacity. Although steel prices rebound rapidly, hidden dangers will be left. Some inefficient enterprises survive because of their good origins and large size, delaying the improvement of the efficiency of the whole industry

the price may return to a reasonable level

at present, China has become the world's largest steel producer and consumer. With the advancement of urbanization, China's steel consumption structure still has great opportunities. From the perspective of industrialization, China's current industrialization process is equivalent to the peak period of daily crude steel output, but there is still a certain gap between the per capita crude steel output, per capita apparent consumption and other indicators with the United States and Japan, which will give the steel market some room for development. In terms of investment, the growth rate of China's manufacturing investment will rebound in 2018, and the growth rate is expected to reach 5% - 7% year-on-year; The growth rate of real estate investment is expected to fall, with a growth rate of 3% - 5%; The growth rate of infrastructure investment decreased slightly, reaching 15% - 17%. In terms of consumption, the growth rate of China's automobile production returned to a stable level in 2018, with a growth rate of 5%; The replenishment cycle of household appliance industry has basically ended, and the output growth rate is 5%; The growth of machinery industry will continue, which will drive the growth of steel in other industries by about 5%; The total retail sales of social consumer goods is expected to maintain a rapid growth level of 10% - 11%; The average price of raw fuels may fall in 2018, but the prices of coking coal and coke are stronger than those of iron ore, and the average price of scrap steel will rise further

on January 4, the Ministry of industry and information technology sent a message to the steel industry that it should continue to unswervingly do a good job in reducing steel production capacity in 2018, and strive to complete the upper limit target of the 13th five year plan ahead of schedule

Gu Jianguo said that the market supply in 2018 will be "less" than the "ground steel" produced in the first six months of 2017. At the same time, environmental protection law enforcement will have an impact on some enterprises. 4. Oil filling and oil drainage, but there are still some new production capacity put into the market. On the whole, the supply and demand of steel market in 2018 is basically stable, but the situation of supply exceeding demand in the upstream iron ore market will continue. According to the prediction, the average price of steel in 2018 is slightly higher than that in 2017, and the steel price may reach the peak of the year in the case of downstream construction and low inventory in spring. In the case of a small contraction in the supply side of the industry, the increase in downstream demand in spring is larger. On the one hand, the demand suppressed by environmental protection policies in autumn and winter 2017 will be released in spring 2018; On the other hand, as the delayed and advanced market demand of environmental protection policies will push up seasonal consumption, the demand in spring 2018 is relatively strong. The market expects that environmental protection will still suppress demand in autumn and winter 2018, and this part of demand will be released in advance until spring

generally speaking, China's steel demand may fall slightly in 2018, with the average price rising slightly, and the annual operation situation "turns around". Specific to each time period of the year, steel prices may adjust recently, and stabilize or even rebound before the Spring Festival; After the end of the "March 15" production limit, the production capacity will be vigorously released, the short selling force has reached a consensus, and the price will accelerate the decline; With the arrival of the off-season demand, steel prices fell or accelerated, but with the improvement of seasonal demand and the gradual implementation of production restrictions in winter, steel prices are expected to rebound again. At the end of December, due to weak terminal demand and relatively sluggish transactions, domestic spot steel prices fell slightly, but the continuous follow-up of terminal demand was slightly weak. Moreover, although the steel inventory level in the market is still low on the whole, it has turned from decline to rise, and the funding level is also relatively tight at the end of the year. The superposition of all these factors makes the steel market in a narrow range of shocks

looking forward to the future, China's steel industry will continue to solidly promote the supply side structural reform, the high-quality steel production capacity will be released one after another, the supply and demand will stabilize, the steel price may return to a reasonable level, and the debt to equity swap of steel enterprises will make substantial progress

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