What challenges are hidden behind the high operating rate of low-end galvanized sheets in April? [SMM Analysis]

Galvanized sheets, due to their excellent corrosion resistance, are widely used in construction, automotive, home appliances, machinery, electronics, and other industries. With the demand driven by China's industrial development, the galvanized sheet industry in China has made significant progress over the past 20 years. However, the production capacity of private galvanized sheet enterprises is unevenly distributed, which mainly concentrated in Shandong, Hebei, Jiangsu and Zhejiang. Shandong, in particular, accounts for almost half of the galvanized sheet market, with production distributed mainly in Guan and Boxing counties.

According to an SMM survey, the national overall operating rate of galvanized sheets plants in April was 81.83%, up 1.52% MoM and 7.24% YoY. In Boxing, the overall operating rate of sample enterprises was 78.48%. April saw high demand for color-coated sheets thanks to the traditional peak season for the construction industry. Due to their cheaper prices, galvanized sheets in Boxing have a significant competitive advantage in both domestic trade and exports, maintaining good orders. However, entering May, orders have shown a significant downward trend.

Here are some issues in the development of low-end galvanized sheets:

1. Over-reliance on single industry demand. Low-end galvanized sheets in Shandong are mainly used for color-coated sheets, ultimately going into the construction industry. According to NBS data, from January to April, the floor space of completed housing construction by real estate development enterprises was 6.8754 billion square meters, down 10.8% YoY. The residential construction floor space was 4.8065 billion square meters, down 11.4% YoY. The newly started floor space was 235.1 million square meters, down 24.6% YoY. The newly started residential area was 170.06 million square meters, down 25.6% YoY. The completed floor space was 188.6 million square meters, down 20.4% YoY. The completed residential area was 137.46 million square meters, down 21.0% YoY. Therefore, under the influence of the cooling real estate market in recent years, frequent "implosions" in major real estate companies, and an increase in unfinished buildings in many places, the demand for galvanized sheets has decreased, competition has increased, and orders have shown significant seasonal fluctuations.

2. Low-end products with small profit margins. Low-end galvanized sheets have low technical content and low entry requirements. With the continuous expansion of galvanized sheet production capacity in recent years, overcapacity has emerged. Due to complete market regulation, price wars have inevitably occurred, severely compressing profit margins. Small-scale enterprises, in particular, lack price competitiveness.

3. Global turmoil and slowing overseas economic growth. Due to their low prices, low-end galvanized sheets have a significant advantage in exports. Customs data shows that in April, China's net export of galvanized sheets was 1.0279 million tons. However, exchange rate fluctuations and anti-dumping investigations and tariff increases in some countries and regions have significantly impacted galvanized sheet exports.

In recent years, many low-end galvanized sheet enterprises eliminated outdated production capacity, upgraded equipment, expanded into more emerging products such as aluminum-zinc and zinc-aluminum-magnesium, or developed into enter other application fields of galvanized sheets such as home appliances.