Steel Prices in the Second Half: Go Left or Right?

Demand articles - Downstream demand bottomed out. The PMI index hit a new low during the year. The downward pressure on the economy has not diminished, and investment growth is unlikely to pick up. In the first quarter of this year, China’s GDP growth rate fell to 8.1%, which was a decrease of 1.6 percentage points from the 9.7% growth rate in the same period of last year. We believe that in order to promote economic growth and structural adjustment, there will continue to be economic stimulus policies in the second half of the year. The relaxation of monetary policy will also have a certain stimulative effect on the overall economy. However, some factors, such as the debt crisis in the Eurozone, have led to a weak external demand. Domestically, considering the factors of the change of government, the domestic regulation of real estate such as purchase restrictions In the short term, policies will hardly be able to achieve substantial relaxation. Therefore, policy relaxation will gradually weaken the overall economic pull. In the second half of the year, the overall economic operation will continue to be under great pressure.

From the perspective of fixed asset investment, in the first quarter, the growth rate of China's fixed asset investment has also dropped to 20.9%, down by 4.1 percentage points from 25% in the same period of last year. According to the view of the China Merchants Macro Group, it is expected that the macro-control policies may be more concentrated on the infrastructure investment level, and the overall investment may have a certain pulling effect. However, considering that real estate and related industries account for a large proportion of fixed-asset investment, we believe that Under the restriction of real estate control policies, the growth rate of fixed asset investment in the second half of the year is unlikely to show significant improvement.

In May, the PMI index hit a new low in the year. The May PMI fell to 50.4, down 2.9 percentage points from the previous month, hitting a new low during the year. Among them, the new order index was 49.8, which fell by 4.7 percentage points from the previous month and fell below the threshold, indicating that the demand in the manufacturing industry has shrunk. From the perspective of the sub-miniature industry, it includes special equipment manufacturing, automobile manufacturing, and railway ships. The market demand for aerospace transportation equipment manufacturing, ferrous metal smelting and rolling processing industries showed signs of declining.

Impact on downstream sub-sectors. The economic outlook is uncertain. The decline in investment growth has caused downstream demand in the steel industry to be sluggish. From the perspective of industrial value-added data, the year-on-year growth rate of industrial added value in April this year has dropped to 9.3%, a substantial decline of 4.1 percentage points from the same period last year, hitting a new low since June 2009; from the downstream segmentation demand The construction machinery industry started its busy season and the sales season was lower than expected. The whole year faced some pressure. From the perspective of output data, the auto output in April this year only increased by 7% year-on-year, and the cumulative production data for the first four months showed that this year The total automobile output only increased by 0.2% year-on-year; in real estate, the area of ​​new homes started in April was negative by 4.2% year-on-year, which was the first negative growth since the 9th anniversary of 2009.

According to the specific conditions of each downstream industry, we have made a detailed forecast of its steel consumption. It is expected that the demand for steel in the real estate industry will be around 382 million tons (of which 360 million tons will be for commercial real estate, and 7 million will be used for protection of housing steel at about 22 million tons). Looking at the machinery industry for the whole year, pressure is expected to increase, and steel consumption is expected. It will decline to 112 million tons, and the automotive and appliance industries are expected to grow by about five points a year. It is estimated that the steel consumption will be 15 million tons and 9.2 million tons respectively. In terms of infrastructure, we expect the construction of railways, water conservancy, and subways The pulling demand for steel demand was 22 million tons, 15 million tons and 27 million tons respectively.

Real estate and infrastructure: In the second half of the year, infrastructure projects are expected to bring about new sales demand, resulting in dismal sales data, and the incremental demand is inhibited. Due to the impact of some real estate control policies such as restriction purchases, the sales data of commercial housing was slightly dismal this year. From January to April, the total area of ​​commercial housing sales reached 215 million square meters, a year-on-year decrease of 13.4%. The dismal property of the housing sales data also directly affected real estate sales. With the willingness of businessmen to acquire land, during the same period, the land purchased for real estate development was 96.703 million square meters, a year-on-year decline of 19.3%, which was the largest decline in the past three years. The area of ​​new housing started in the same period reached 545 million square meters, a year-on-year negative growth of 4.2%. The first negative growth since 09. The sharp decline in land purchase area and negative year-on-year growth in new housing starts have undoubtedly brought about a certain degree of negative impact on the incremental demand for the downstream steel industry.

Real estate projects under construction in the short to medium term still support the demand. From the data of investment and housing construction area, although it also experienced a substantial decline compared to the same period of last year, the growth rate is still above 20%. In the short to medium term, the steel industry's demand constitutes a certain support. From January to April this year, the total fixed asset investment in the real estate industry reached 1.98 trillion yuan, an increase of 23.18% year-on-year and a decrease of 9.22 percentage points from the same period of last year, but slightly higher than the national fixed asset investment growth rate of 20.24%. The area was 4.272 billion square meters, an increase of 21.2% year-on-year and a year-on-year decline of 12%.

It is estimated that in 2012, the demand for steel in the commercial housing market will reach 360 million tons. We expect that the total area of ​​new commercial real estate to be constructed (house construction area minus house completion area) will be between 4 billion square meters and 4.5 billion square meters in 12 years, and the total area of ​​new housing starts will be between 1.5 billion square meters and 1.7 billion square meters. According to the calculation of 0.065 tons of steel per unit area of ​​commercial real estate, it is estimated that the amount of steel for commercial real estate will reach 360 million tons this year.

The construction of affordable housing has been steadily advancing, and the operating rate for the month ended May was 46.4%. According to the latest data released by the Ministry of Housing and Urban-Rural Development, in 2012, it plans to start construction of more than 7 million sets of affordable housing and 5 million sets of cities. By the end of May, it has started 3.46 million sets, the operating rate was 46.4%, and 2.06 million sets were basically completed, completing the investment. 38.95 million yuan.

According to the “Twelfth Five-Year Plan” requirements, from 2011 to 2015, the national task of building affordable housing is 36 million sets, of which 10 million sets will be started in 2011, and the number of starts in 2012 is expected to be 7 million sets. Housing construction will generate about 20 million tons of demand for the construction steel market, and will also hedge against the negative impact caused by the decline in the area of ​​construction of commercial housing.

The construction of affordable housing has boosted the demand for steel by 22 million tons. The housing construction area is calculated at 55 square meters per household. The total building area of ​​7 million security housing projects this year is expected to reach 285 million square meters. Calculating the steel consumption per unit area of ​​0.058-0.065 tons, it is expected that this year's housing construction will boost steel demand. 22 million tons.

Infrastructure projects are expected to bring new demand in the second half of the year. According to the macro view of the China Merchants Securities Group, it is expected that the macro-control will focus on increasing infrastructure investment in the second half of the year to stimulate economic growth. We believe that the expansion of infrastructure investment is expected to become a new growth point for steel demand.