China Steel Price Reproduces Stage Rising Market

Historical data show that steel price often rise in stages after the Spring Festival. Analysts pointed out that from the current steel market inventory and supply and demand situation, the steel market after this Spring Festival is likely to repeat the bullish market.

Parallel High Production and Low Inventory:
"The key factor affecting the trend of steel price after winter storage is the matching degree between winter reserves and post-season demand." The core factor of winter storage is the cliff-like decline in demand caused by the Spring Festival, with steel consumption averaging 61% of steel output in February each year. During the winter storage period, a large number of steel stocks accumulated around the Spring Festival for a total of six weeks, accounting for an average of 84% of the total stockpile. From the perspective of the main participants, winter storage is a process of transferring risks from steel mills to steel traders. The first is that the proportion of steel mills'inventory is significantly reduced during winter storage, and the second is that the accumulated time of steel mills' warehouses is 4 weeks shorter than that of social stocks.

"The characteristics of this round of winter storage stage are high production and low inventory. It is expected that this round of winter storage center will decline to the high point between 2016 and 2017. After the Spring Festival, the overall steel demand is expected to maintain toughness, and steel prices will be strong operation."

"Post-holiday inventory will be slightly lower than the same period in 2018. Inventory is expected to decrease by 3.2% in the first week after the Spring Festival. Inventory will increase by 8.64 million tons during the period, and the scale of winter storage is not small. First of all, before the Spring Festival, the output of the long process steel plant increased steadily due to the re-production of many blast furnaces which had been repaired earlier and fewer new ones. Production reduction mainly comes from short-process steel mills, mainly due to the Spring Festival holiday shutdown and loss initiative to reduce production. The average weekly output during the Spring Festival period is estimated to be 9.5 million tons. Secondly, since December 2018, terminal procurement of building steel materials has exceeded expectations, rising by 8.5% year-on-year, which is related to the high turnover strategy of real estate and pre-holiday rush. It is estimated that the average terminal purchasing volume will be 5.82 million tons in the two weeks during the Spring Festival this year, which is comparable to that in the past two years.