Fundamental improvement in rebar stabilizing

After the turbulence at the bottom of June, the thread oscillated in July. As of July 19, the closing price of the rebar index rose about 4% from the beginning of July.

Since the rise of Shanghai Steel in July, the author believes that this is the result of the resonance of fundamental improvement and technical indicators. On the one hand, there have been signs of steel mills cutting output since July and consumer demand in the off-season is better than in previous years. On the other hand, the four-month decline in Shanghai Steel and the bottoming activity in June have gradually built up technical rebound requirements. At present, although the macroeconomic situation is still sluggish, there are still bright spots in railway investment and real estate investment. In addition, the steel mills have already shown signs of production cuts, and with the arrival of end-user demand for hedging, the rebar gains have stabilized.

Economy will maintain or sustain low growth

From the view of the GDP growth structure in the first half of this year, although investment has become an important factor in driving GDP growth with a contribution rate of 53.9%, the process of industrial recovery has dragged on. The final values ​​of mid-cap PMI and HSBC PMI in June were only 50.1 and 48.2. It is precisely because the current government regards “adjusting structure” as the focus of the economic route. In the first half of the year, when the 7.6% economic growth rate has not fallen to the scope of the government “cannot tolerate”, the government imposed on the market “does not return to the old path of economic development. "It is expected that the economy will still maintain a low growth rate.

Steel mills start to cut production due to profit and seasonal factors

In the first half of this year, the profitability of domestic steel mills continued to decline, and the loss surface continued to expand, which triggered a reduction in the output of steel mills. National Bureau of Statistics data show that in June the country’s daily average crude steel production fell by 2.4% from the high in February to 2.155 million tons. According to the data from the China Iron and Steel Association, in the first half of July, the average daily average steel output fell to 2.083 million tons, which fell by nearly 100,000 tons compared to the previous period. The signs of steel mills' production cuts are increasingly evident. Although there are opinions in the industry, it is reported that underreporting has led to distortion of steel production statistics. However, according to the law of production of steel mills in previous years, the production of steel mills in the third quarter will be significantly lower than that in the second quarter. Taking into account the implementation of environmental protection policies in Hebei Province this year and the profitability of steel mills this year, the author believes that the reliability of statistical data is relatively high. On this basis, the continuous reduction of steel production will improve the current situation of domestic oversupply.

Stock shift, downstream or facing regional shortage

Due to the slow delivery of poor profits, the purchase intention of traders this year has continued to decline. As a result, steel social inventories have continued to decline since March. However, taking into account the steel plant inventory continues to be high, steel stocks are still high: as of early July, the total inventory of all types of steel society is 1614.65 million tons, and the steel stocks of key steel enterprises during the same period are also as high as 12.7524 million tons. High stocks put some pressure on steel prices. However, since July, even if the Shanghai Iron and Steel rose under certain circumstances, the spot price of steel products in various regions will also increase. The author believes that this phenomenon is due to the fact that this year's inventory was transferred from the trader to the steel plant and the downstream supply was relatively tight. With the steady rebound in spot steel prices since June this year, together with real estate start-up data and infrastructure investment data, it shows that the downstream demand is not in the off-season. This has led to an increase in terminal purchases, which has led to a significant spot rebound in some regions. In July this situation will continue.

Housing, Railway Investment Increases Lido Steel Consumption

In June, the year-on-year growth rate of cumulative housing investment declined slightly by 0.4 percentage point from May to 20.6%, but the cumulative year-on-year growth rate of new housing starts rose from 1% in the previous month to 3.8%; while the growth rate of housing construction area declined slightly, Most of them are due to the accelerated growth rate of construction. It is clear that investment in start-up and construction of housing investment has increased. The improvement of the start-up data will drive steel consumption in a longer period of time and will benefit more steel consumption. Under good sales and escort by shadow banks, the cumulative growth rate of capital sources for housing enterprises in June was still 32.1% year-on-year, and market news showed that the government has the intention to broaden the channels of housing enterprises, and the funds for future developers will remain abundant. In addition, the land purchase boom that began in September last year also gave developers a land reserve. In the second half of the year, the investment in commercial housing will further increase, and a considerable part of the investment will be used for start-up and construction to stimulate the demand and consumption of steel.

Although adjustments due to the development of the central government have occurred, it is almost impossible to launch a large-scale investment stimulus plan in the short term, but investment still has bright spots. The long-brewed railway industry investment program has been approved by the State Council in principle. In response to the local government's desire to develop the intercity railway to stimulate the economy, the market may set off a new round of railroad construction.

Therefore, it is recommended that the long-term bulls should continue to hold the long-term bullish line at the 10-day moving average, and it is better to buy short-term bullish callbacks.