Downstream demand may face decline in traditional off-season in June [SMM Steel End-Users Demand Report]

In May, with continuous support from macro policies, the issuance of ultra-long-term special bonds, large-scale equipment upgrades, and the implementation of policies for the replacement of old consumer goods, as well as the optimization of real estate policies in various regions, have all somewhat boosted downstream demand, leading to an improvement in the demand for construction steel. The PMI for the steel industry in May 2024 was 49.8%, up 1.9 percentage points MoM, marking a significant increase for two consecutive months. The data indicates that the steel industry is stabilizing and rebounding, and the industry has already established a foundation for positive development.

1.The new orders received by companies are basically flat

According to the SMM survey, 60% of the surveyed companies have recently undertaken new projects, while the remaining 40% are still continuing with old projects and have not yet received new ones, which is flat compared to the previous data.

According to Shandong Judao Decoration Engineering Co., Ltd., the current project will be completed in June, and it is basically finished now, with work being done on the periphery. The progress of other projects is normal, but the construction progress may slow down next month. Most of the workers are from the surrounding areas of Shandong, and there will be more leave requests, which will affect the construction progress. Additionally, the weather in July and August will have some impact, but since most of projects are indoors, they are more concerned about heavy rainfall in the later stages, which will affect the construction progress. So far, they have not received any new projects due to fierce competition.

2. Financial situation slightly improved

According to Shanghai Construction No.1 (Group) Co., Ltd., the project situation in H1 was not good, and after the completion of the projects, no new projects were taken on. The situation in H2 did not improve significantly either, with almost no new projects starting. The existing projects that could be undertaken after completion were also few, mainly due to poor economic conditions and a lack of government projects. The financial situation was tight from top to bottom, and material payments still needed to be settled. There were delays in the settlement of government project fees, and the government's financial situation was also poor, leading to slow project progress. Once the government's financial situation improved, normal construction can resume.

3. Downstream Companies' Expectations for the Future Market Have Improved

According to the SMM survey, currently, 59% of downstream companies remain optimistic about the future market, up 8% MoM. Market participants believe that macroeconomic policies will take effect in the future, and overall market demand will improve. Therefore, the market outlook is relatively optimistic. Meanwhile, 41% of companies are taking a wait-and-see approach towards the market environment, believing that the market has not yet reached a turning point and holding a relatively pessimistic outlook.

China Railway 14th Bureau Group Electrification Engineering Co., Ltd. said: The projects in H1 were still mainly last year's projects, with few new projects coming in. The number of new projects in H2 will also be fewer than last year, and overall, the number of projects this year is less than last year. The new projects do not involve new infrastructure and are still mainly traditional projects. There are no national-level projects either. The number of new projects starting next month will increase, and the number of completed projects will also increase. Currently, the situation can only be maintained, and it is difficult to see any improvement in the future.

In summary, with the intensification of macro policies and the frequent release of favorable measures for the real estate sector in May, downstream demand has improved. However, due to seasonal factors, end-user demand shows a "strong in the north, weak in the south" pattern. In June, with the wheat harvest and the arrival of the rainy season in south China, downstream demand may not be as strong as in May. Nevertheless, the current market has strong expectations for macro policy guidance. If favorable policies continue to be introduced, we should not be overly pessimistic about downstream demand, and there may be some expectations for infrastructure performance.