Background
The upstream of the iron and steel industry includes iron ore, coke, scrap steel, and ferroalloys. The downstream application is very extensive, and it can be used as a basic raw material in various industries such as construction, machinery, and automobiles.
At present, the “blast furnace-converter” long-process production is still the mainstream production process of steel in China. Iron ore and coke are the main raw materials for steelmaking. Although China’s iron ore reserves are abundant, accounting for more than 10% of the world’s share, most of them are lean ore, resulting in a large scale of imports in my country, and the supply is restricted by other countries. The supply of coke is sufficient and the output is relatively stable. Ferroalloys are in ample supply.
From the downstream point of view, infrastructure construction drives the development of the steel industry. In the first half of 2022, the cumulative growth rate of China’s infrastructure investment is 7.1%. A series of national, provincial, and municipal large-scale construction projects are in full swing, and steel demand will rise sharply.
Oversupply, steel inventories increase
Since the beginning of 2022, China’s steel industry has continued to slump. The PMI of the steel industry hit the lowest value in the past ten years in July. Both the supply and demand ends of the steel industry are running at low levels. Prices have continued to decline. At the same time, under the influence of the epidemic, the enthusiasm for procurement has declined, the pace of shipments from steel mills has slowed down, and inventories are at the highest level in the same period in history.
Development trend: Under the requirements of green and high-quality development, the industry concentration and the proportion of electric furnace steelmaking will continue to increase
Under the background of dual carbon targets, relevant national ministries and commissions continue to improve policies to promote energy conservation, environmental protection, and green development of the steel industry. The steel industry will also shift from pure-cost competition to comprehensive strength competition. In the future, the profitability, capacity expansion, and development capabilities of steel companies will all be. It will depend on the ability of low-carbon development and green development. At the same time, in promoting the high-quality development of the iron and steel industry, the concentration of the iron and steel industry will be significantly improved, and the development of electric furnace steelmaking with scrap steel as raw material will be accelerated.
Analysis of Downstream Industry Development
Property
As the industry with the largest consumption of steel, the real estate, and steel industry not only present a trend of sharing weal and woe, but also the key signals of the real estate industry have a major impact on the market confidence and future expectations of the steel industry. Since the reform of the real estate market in 1998, the real estate industry has ushered in rapid development; in 2017, after the “housing is not for speculation”, real estate companies officially entered the stage of deleveraging, and the industry entered the stage of de-financialization.
The epidemic swept the world in 2020. China’s economy took the lead in recovering strongly from the epidemic, and a large number of funds flowed into the real estate market. Under this, the government introduced three red lines and a centralized loan management system, which restricted the financing ability of real estate companies. Enterprises are deeply trapped in a liquidity dilemma; at the end of 2021, although real estate policies have been relaxed and favorable policies have been introduced in various regions, under the epidemic, consumers’ desire to buy houses has declined, and unfinished buildings have frequently appeared, and consumer confidence is insufficient, resulting in The development of China’s real estate industry is not as good as expected. In the first half of 2022, China’s real estate development investment was 6.8314 billion yuan, a year-on-year decrease of 5.4%. The continued downturn in real estate has dealt a heavy blow to the steel market.
Automobile
At present, China’s automobile industry is in a critical period of change, and lightweight has become one of the development trends of the automobile industry. Lightweight automobiles mean that the overall steel consumption is reduced, and aluminum alloys, plastics, and other lightweight materials are used to replace steel. It is estimated that by 2022 Automobile steel consumption will decline by 4% year-on-year.
The epidemic will be lifted in 2023 and the economy will recover, but the recovery of real estate is still unclear. Domestic and international demand for steel remains low. Iron and steel enterprises should optimize the smelting process and reduce costs in order to survive.