The Price of Chinese Steel is still Rising, may Increase 200RMB Tomorrow, and will Create New High in March, 2018

2018-03-02

 After the 2018 Chinese Spring Festival, there is a significant increase of the Domestic Steel Price.

There maybe the following three reasons:



A. The demand is gradually realeased.

a. The demand of new projects increase. Mar. 2 2018 is the Lantern Festival, after which many projects will start in succession. In the beginning of 2018, major project investment plans have been lauched all over the country, among which the total investment of Henan, Jiangxi, Hubei, Fujian, Guizhou and Hebei are all over one trillion yuan.

b. The pent-up demand are realeased. In the fourth quarter of 2017 and first quarter of 2018, the construction starts are limited in “2+26 Cities”, which is the Air Pollution Transmission Channel launched in 2017. It is estimated that around 10 000 000 MT Steel consumption is limited, which will be realeased soon.

B. The market cannot make that big increase.

a. The production limit of “2+26 Cities” will continue to March 15, 2018. Although the production resumes in March 16, the new produtions will take less three to five days or more that ten to fifteen days to be shipped to the market. Therefore, between February 22 and March 20, the demand is elastic, while the supply of some cities may not appear a new volume like the years before.

b. The environmental restriction policies continue to be added. The environmental restriction policies are intensively released by local governments. For example, in the heating season of 2018, the Steel Mill Production in Henan Province is limited to more than 30%.
After combining the above analysis of supply and deman, the elasticity of demand is significantly greater than that of supply. As a result, the steel price increase is inevitable.

C. Other factors.

In 2017, many merchants actively stocked up, the inventory was passed to the market. And without sales pressure, there is no incentive to lower prices. Otherwise, when the demand are increased, the orders increase and the rise of steel mills is inevitable, when the steel mill will decide on the price. Besides, with the end of production limit, the steel production will increase the demand for raw materials, which will drive up the price of raw materials, and eventually, the price of steel will be further pushed up.

Taken together, after the Chinese 2018 Spring Festival, inventories have risen sharply, but steel mills have little stock pressure, and steel mills across the country have generally raised EXW. In addition, environmental protection policies are still being added, which to a large extent, market expectations have been raised. The start of downstream recovery requirements will effectively drive steel demand growth. So the price rises in March and a new high this year is almost unsuspected.