SHANGHAI, Feb 24 (SMM)—This is a roundup of post-CNY update on steel.
End-user demand situation
- The Covid-19 situation in China has shown signs of regional recurrence since the fourth quarter of 2020. End-user rigid demand has been interrupted by the pandemic since December and began to fall. As of January 2021, some construction workers were worried about the continued worsening of the pandemic and decide to go home early for CNY. During the last 10 days of January, the daily trading volume of long steel dropped to below 100,000 mt.
- The trading of the rebar spot market continued to weaken since February. End-users have completed small-scale stockpiling before the holiday. Daily trading volume of long steel fell below 10,000 mt as of February 5. (normal trading volume stands at 200,000-300,000 mt)
- According to feedback from traders and steel mills, the demand recovery after the holiday this year is faster than in previous years. On the one hand, the weather this year is good and the pandemic has been brought under control, which is suitable for construction. On the other hand, a considerable number of workers chose to stay put during the CNY in response to the government's call due to the regional outbreak of the pandemic before the holiday, so the recruitment efficiency of construction sites after the holiday was relatively high. Some northern market merchants reported that the volume of rigid demand goods returned to 20% of the normal.
Market transactions
- Relatively consistent with the situation of end-user demand, steel mills’ winter stockpiling policies have been released one after another about two weeks before the holiday (from the end of January to the beginning of February). Winter stockpiling prices were higher than market expectations. Merchants are relatively cautious about prices after the holiday and are less willing to restock. Merchants have left the spot market since February 5, and spot prices remained stable until the middle of the CNY holidays (mid-February).
- The recovery of end-user demand was more efficient post-holiday. In addition, the futures and stock markets were linked up, market bullish sentiment was mobilised with increasing speculative demand, and the overall trading atmosphere became more active than the same period in previous years.
Short-term view
- Global economy is in the recovery stage after the pandemic. The capital market is expected to be good. The domestic CPI and PPI are expanding moderately. From a macro perspective, the bulk commodities are on an upward trend.
- From the industrial perspective, although the production of steel mills was stable and operating rates of electric furnace plants were also picking up, end-user demand recovered rapidly, the year-on-year increase in inventories narrowed sharply, and the market had strong expectations for future demand conditions. Combined with the support from cost end (iron ore and coke), spot prices of rebar are still in the upward cycle.
- However, considering that the current market sentiment is relatively active and the demand has not yet fully recovered, prices may have the demand for short-term shocks after the rise.
Market Survey
- Beijing Haiying Construction Engineering Co., Ltd: The company has resumed production, and workers have been in place one after another. The projects before the CNY were basically completed, with some finishing and delivery works in completion. The company is now preparing for the new project. There is not much restriction in Beijing, and the impact of the pandemic is not great now, which does not affect personnel and construction. The company's situation is relatively good, and there is no change. Funds are still a bit tight due to the new projects.
- The Fourth Engineering Co., Ltd. of China Railway 14th Bureau Group: The company has not yet resumed production, and is doing the preparations for construction with no restocking as the company has stockpiled enough before the CNY. The price is now higher than before. The company will resume production normally in March, and there is no impact now. The pandemic control was relatively good during the Chinese New Year, there were no big changes in the staff, and those who returned home for the CNY were able to arrive on time. The start of construction in the Northeast region may be advanced, while the time will be past March. The construction period is relatively tight. Other regions are in normal production.
- China Construction Third Bureau Construction Engineering Co., Ltd.: The company has not yet resumed work. This month is in a state of suspension. Compared with the previous month, they have reduced both the construction progress and the steel procurement labour force. As the projects are mainly in Beijing, the management is relatively strict. According to the normal resumption plan, it will be early next month. In this way, the construction progress in the next three months will be accelerated, while there is no new project. Once production has been resumed, the labour force will return to normal.
- China Construction Third Engineering Bureau: The construction sites basically started work, which are all in Jiangsu, Zhejiang and Shanghai, and the accounts were closed before the CNY, so the funds are not tight recently. There were no new projects started or received in February.
