Galvanizing production started strongly but then weakened in H1. How will demand be in H2? [SMM Analysis]

In the first half of the year (H1), tariff disputes persisted, jointly boosting domestic consumption from multiple perspectives such as capital and demand. However, due to time constraints, the implementation speed has been relatively slow. According to communication with SMM, the operating rates of galvanising producers in H1 2025 moved downwards after a higher opening. What were the reasons?

From the perspective of Q1, galvanising enterprises began to enter the holiday maintenance schedule one after another from early January. Meanwhile, due to the cold weather, most construction projects also gradually entered the holiday schedule, and demand started to pull back. After the holiday, large factories resumed production first, while small factories gradually resumed production around the Lantern Festival. The progress of project construction and resumption of work was slow, and demand climbed slowly. Infrastructure investment in February increased slightly YoY. Most enterprises were fulfilling orders placed before the Chinese New Year, and the operating rates of galvanising producers rose slowly. Compared with the same period, the operating rates were relatively weak. By early March, there was no obvious sign of the traditional "golden March" peak season as in previous years. However, demand improved subsequently, and the operating rates rose. The "2024 China Fiscal Policy Implementation Report" released by the Ministry of Finance on March 24 explicitly mentioned actively expanding effective investment. It emphasized coordinating the use of various government investment funds, focusing on key areas and weak links to increase investment. It also stressed arranging the issuance of government bonds reasonably, accelerating the budget allocation of government bond funds, and forming physical workloads as soon as possible. This boosted the market, and the overall operating rates in March increased YoY.

Entering Q2, the operating rates in April surged, and the operating rates of galvanized pipe producers also reached a three-year high. The main reasons were that ferrous metals prices in April were relatively stable, with a steady increase. Traders rushed to buy amid continuous price rise and held back amid price downturn. The overall sales volume of galvanized pipes was moderate, and many enterprises continued to operate with a low inventory turnover model. Weekly inventory days were maintained at only around 7-8 days, and order turnover was good, leading to an increase in enterprise operating rates. In terms of structural parts, there were new orders gradually being released for steel tower orders, and new tenders were continuously issued. Steel tower orders remained robust. Guardrail orders were also robust. Export orders were partially rushed to export due to tariff impacts. Overall, the operating rates in April were good. However, demand began to pull back in May and June, entering the traditional off-season. There were impacts such as heavy rainfall and floods. Meanwhile, the northern region entered high-temperature weather prematurely, limiting terminal construction and causing a significant decline in demand. The operating rates gradually declined. Looking ahead to H2, China's "Supply-Side Structural Reform 2.0" is gaining momentum again. Anti-"rat race" competition policies are boosting the steel industry. Meanwhile, the National Development and Reform Commission's (NDRC) Center for Urban and Small Town Reform and Development is focusing on "implement major national strategies and build up security capacity in key areas" and "program of large-scale equipment upgrades and consumer goods trade-ins" funds to increase investment in key areas of new urbanization. This will provide a certain boost to downstream consumption. However, Q3 itself is an off-season for consumption, with frequent extreme weather conditions, and overall construction activity is expected to be relatively weak. Nevertheless, with policy support, consumption is expected to gradually improve in September and October, with construction activity picking up, and then gradually weaken on a QoQ basis in winter.