In recent days, against the backdrop of a general weakness in commodity markets and a significant drop in crude oil prices, the black series has stood out, demonstrating a strong bullish trend.
First, it was iron ore, followed by the spring breeze of 1 trillion yuan in government bonds, leading the way for the peerless double coke to soar. Later, soda ash drove the glass market, reenacting the September scenario. In November, commodities became the domain of the black series.
We have discussed the soda ash market many times before. The main reason for this rise is still the supply side falling far short of expectations. Amid deep contango, various rumors and speculations emerged, with whispers that soda ash factories would shut down. However, the most fundamental factor behind the scenes is that the Jinshan and Yuanxing Line 3 failed to start production as scheduled in October.
As for the steel sector, it is mainly due to the 1 trillion yuan policy stimulus that has given the market ample room for imagination.
The current market situation is actually quite clear: low inventory, but the off-season is imminent. At this time, expectations play a significant role. Traders have become the key to determining the trend of the market.
On the cusp of the off-season, the steel market generally maintains a tight balance, with high pig iron levels and upstream procurement based on demand. However, due to the market's extremely optimistic expectations for policy stimulus next year, traders are stockpiling, and there is a lot of anticipation for the winter restocking market. Expectations have become the key factor in breaking the supply-demand balance.
If the story is well-told and people believe it, that's enough.
Generally speaking, during the Spring Festival holiday, coal factories will shut down, but steel and glass factories, due to the high cost of stopping production, need to continue operating, which creates a seasonal restocking market.
Of course, the cold winter weather affects construction and also impacts demand seasonally. However, expectations play a crucial role here. If expectations improve, more stockpiling and production will occur, thereby breaking the supply-demand balance.
Currently, under high-interest rates, the global economy is generally weakening, which further strengthens the market's expectation for more stimulus policies from the state, as the economy is really too poor and needs counter-cyclical adjustments.On the day when the 1 trillion policy was introduced, I mentioned in my article that the increase in the deficit ratio is a signal released by the country, clarifying its attitude to support the economy. In fact, the fiscal side was quite cautious in the first half of the year, which gave the market a lot to look forward to.
Therefore, the current bullish market has a foundation. Recently, the losses of steel mills have narrowed, and many people say that the negative feedback has long ended and entered the positive feedback stage.
However, the problem lies in the fact that everything has a price, and any good news has a price. Is the current price high enough?
After all, the current macro environment is too poor. The economies of Europe and America continue to weaken, unemployment rates are accelerating, and PMI has declined beyond expectations. Can China's demand hold up?
This year, the demand for Chinese steel is relatively good, not entirely due to domestic factors, but also because exports are an important driving force.
Customs data show that from January to October, China's steel exports reached 74.73 million tons, a year-on-year increase of 34.8%! In the same period of 2022, it was 55.442 million tons, a direct increase of nearly 20 million tons.
At the same time, the import of steel also decreased. From January to October, the cumulative net export of steel in China was 68.36 million tons, a year-on-year increase of 44.7%, higher than the export growth rate. That is to say, from January to October 2023, the net export of steel drove the demand for steel by 21 million tons, while the steel output in the same period last year was 1.116 billion tons. That is to say, this year's increase in steel exports accounted for 1.89% of the output, which greatly drove the demand for pig iron. Foreign demand is one of the main drivers of the steel industry this year.
However, the export value of steel from January to October decreased by 2.2%. The current situation of steel exports is that the volume increases while the price decreases. But with the weakening of the global economy, the export volume of steel has been declining for two consecutive months in October.
Just in the past few days, the Federal Reserve Chairman reiterated his determination to reduce inflation: If necessary, he will not hesitate to raise interest rates. In addition, the latest auction interest rate of the 30-year U.S. Treasury bond has exceeded expectations again, showing that under the Federal Reserve's firm shrinking of the balance sheet, the tightening situation has not improved.
Obviously, in the next two months, both foreign and domestic demand for steel will decline synchronously.When that time comes, strong expectations will collide with reality. How weak will the off-season be? Who will ultimately have the last laugh? Is 1 trillion in government bonds enough? Will the real estate situation continue to deteriorate? Is the demand for black metals really that good?
In the context of such a sluggish macro environment, can black metals really dominate everything? If iron ore breaks the 1000 mark in such a situation, the world will be in chaos, and it's time to stop.
All the money is earned by broken stones. What will be used to revive the global economy? If downstream industries don't make money, there's no money to spend, and investments can't recoup their costs, what's the point of playing? Income doesn't grow, houses can't be sold, and in the end, demand naturally declines.
Some say it's the four major mines deliberately controlling production capacity. Who let them have a monopoly? OPEC also has a monopoly, but it still falls when it should. Controlling production capacity at low prices, and still controlling it at high prices, is cultivating competitors. The four major mines are not a united front either; who wouldn't make money if there's money to be made.
According to statistics from the World Steel Association, in the first three quarters of 2023, the blast furnace pig iron production of 37 countries and regions was 986.7 million tons, a year-on-year increase of 1.5%. In fact, the overall steel demand this year is relatively poor. In 2022, the global crude steel output was 1.831.5 billion tons, a year-on-year decrease of 4.3%, and this year it only increased by 1.5%.
Next, don't count on real estate. It would be great if we could just complete the construction without any unfinished projects. In terms of automobiles, Tesla has raised prices because costs have risen, and the default rate on car loans has begun to increase. Without real estate, relying on China's infrastructure alone cannot support 1000.
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