Steel production capacity is not surplus Steel prices fall call for long-term layout of resources

After September of this year, domestic steel prices fell for two consecutive waves, but the worst situation in the steel market has yet to come. It is possible that the third wave of declines will bottom out. According to most of the views, over-release of production capacity is the main factor in this round of steel price drop. However, the latest statistics show that the release of China's steel production capacity in 2011 was significantly lower than the six-year average, and no abnormal situation has occurred. Therefore, it is necessary to seek more important reasons in addition to the relationship between supply and demand.

No excess steel production capacity

After entering this century, China's crude steel production has maintained double-digit growth in most years. From 2005 to 2010, the average annual growth rate of crude steel production was 13.8%. Only in 2008 when the global financial crisis broke out, the increase in crude steel output in the country fell sharply to 1.1%. In November 2011, the country’s total crude steel production was 63.09 million tons, an increase of 9.8% from the same period of last year. It is estimated that the annual output will be approximately 680 million tons, an increase of about 10% from the previous year, or less than 10%, which is in line with the increase in 2010. The speed is roughly the same, and it is obviously lower than the average growth level in 6 years. It is difficult to conclude that the 2011 steel production capacity has been excessively released.

In 2011, China's two major industries of crude steel consumption were not satisfactory in manufacturing and construction. Statistics from the National Bureau of Statistics show that during the period from January 2011 to November, the national industrial added value increased by 13.3% year-on-year, and the fixed asset investment grew by 24.5% year-on-year, which is a drop from the growth rate of the same period last year. In addition to the price increase factor in the growth rate of investment, the actual growth rate has fallen more. China's purchasing managers' index in November also fell below the 50's rising and falling line. Affected by this, despite the year-on-year decline in the level of steel consumption growth, due to the fact that its manufacturing and construction industries have maintained a growth rate of more than 10%, and the good performance of direct exports, the estimated annual crude steel consumption (full-caliber, With direct exports, it is also moving closer to 700 million tons, and the growth rate will not be less than 8%. The overall supply and demand relationship is generally balanced, at least not a very serious oversupply.

People can not help but ask, if the supply and demand relationship is generally balanced, or the degree of oversupply is not serious, why has the steel market not flourished in a few months and the price has fallen sharply in recent months? The reason for the drop was that in addition to the large and excessive increase in steel prices in the first half of the year, some bubbles were created and adjustments were needed. The economic expectations both inside and outside the country deteriorated in the second half of the year. Producers and investors shrank with panic and turmoil, severely hitting the market. confidence. This kind of panic scare mainly comes from two aspects.

First, the debt crisis in Europe and the United States continues to deteriorate. After entering 2011, the debt crisis in Europe and the United States, especially the debt crisis in Europe, has intensified, and so far no effective solution has been seen. If the euro zone collapses, it may trigger a more serious recession in the world economy, even an unprecedented economic depression. Under such circumstances, China's steel exports are bound to be seriously affected, including its indirect exports and direct exports.

The second is the tightening of domestic demand control policies. In order to prevent the price from rising too quickly, relevant departments introduced some austerity measures to curb demand. For automobile and residential purchase restrictions, especially financial institutions generally raise interest rates continuously, raising the deposit reserve ratio to an unprecedented level. The reduction in new construction projects and actual construction will also have a great impact on construction steel consumption.

It is precisely because of the optimistic status quo and trends of the above-mentioned major industries, that even worse prospects may even appear, which has dealt a heavy blow to market confidence and the market panic has shrouded in shadows. Steel producers and operators and investors have sold one after another. Even the “steel winter storage” that is being carried out every year has also been hit hard. This has led to constant bottoming of steel prices, which in turn has depressed the price of raw materials such as iron ore.

Adhere to the long-term layout of resources

Judging from a period of time in the future, the biggest influencing factor in China's steel market will be the global “rescue” and a significant adjustment of China’s macroeconomic policies under its influence. The increasingly fierce "Euro-U.S. debt crisis", especially the European debt crisis, has caused worries about a more serious recession in the world economy.

In order to avoid this catastrophe, there is an increased likelihood that central banks will continue to inject liquidity into the market. If the world's major economies start printing machines together, liquidity will enter the market in large quantities. This will dilute the wealth of existing materials and push up the prices of bulk commodities such as iron ore and metals. From a medium to long-term perspective, global commodity prices will continue to operate at high levels, and international market trends such as oil, metals, and minerals will continue to fluctuate upward and even exceed previous highs.

In this situation, we must adhere to the strategic layout of long-term resources. The era of the future is still an era of "resources are king". It is an era in which resources cannot be copied and banknotes can be printed in large quantities. The short-term decline in the international market for iron ore, metal and other commodity prices will not change the long-term trend of “good price and price increases”. Under such circumstances, China must make the best use of overseas resources and encourage enterprises to give priority to the use of imported ore and coal. China's relevant departments and iron and steel enterprises must formulate long-term strategies for the allocation of global resources. At the same time, with the help of the existing $3 trillion in errands, we must do everything possible to buy as much as possible iron ore, coking coal and other resources, and encourage the preferential use of imported resources, including resource rights and resource products. At the same time, iron and steel enterprises should also be encouraged to invest and set up factories overseas, and improve their raw materials to import finished steel products. This is also an important way to realize the diversification, materialization, capitalization, and equity of China’s ** reserves and avoid serious loss of value. It is also an important aspect of China’s energy conservation and emission reduction and adjustment of its economic structure.