Thrilling! Composure Amidst Turmoil: Has the Steel Price Peak Reached?

Last night, following the release of the Federal Reserve's meeting minutes, commodities such as non-ferrous metals and precious metals, which are linked to the foreign market, experienced a significant drop at the opening of today's trading session. However, domestically, the black commodities sector, excluding iron ore which was affected by the foreign market, the coil and screw steel, as well as coal and coking coal, remained at high levels. So, what is the current fundamental situation of the finished products? Can the black commodities sector continue to rise?

The Federal Reserve's meeting minutes reveal that policymakers are concerned about insufficient progress in inflation decline, believing more time is needed to gain confidence in rate cuts. This hints at a prolonged period of maintaining high interest rates in a wait-and-see stance, with several policymakers indicating a willingness to further raise rates if inflation risks reignite.

Starting from March, driven by favorable demand in the manufacturing sector and the impact of foreign inflation, non-ferrous metals and precious metals began to surge. However, last night, the Federal Reserve again displayed a hawkish stance, boosting market expectations for interest rate hikes and delaying further rate cuts. Under this influence, commodities also saw a significant downturn, with the Shanghai Copper falling over 5,500 points and silver dropping over 1,000 points. The Federal Reserve's hawkish attitude once again constrained the upward momentum of commodities.

Additionally, according to the World Steel Association, the crude steel production of 71 countries included in the statistics was 155.7 million tons in April, down 5% year-on-year. Among them, China's crude steel production was 85.94 million tons, down 7.2% year-on-year; from January to March, China's crude steel production reached 256.55 million tons, down 1.9% year-on-year. According to statistical data, the national crude steel production in 2021 was 1.033 billion tons, while in 2023 it was 1.019 billion tons, almost unchanged from 2022.

In recent years, the overall regulatory tone for crude steel production has been characterized by stability with a downward trend. Data shows that the country's crude steel production decreased by approximately 12 million tons in the first four months. This year, the regulatory pressure is expected to significantly diminish, and historically, China's crude steel regulatory pressure tends to peak in the fourth quarter. With high factory profitability and a warm market outlook, it is difficult for crude steel production to decline in the second and third quarters. Consequently, the output of pig iron may continue to surge above 240 million tons, further boosting the demand for iron ore and coke.

This Friday, data from major steel companies showed a slight weakening, but the resilience in supply and demand remains, with a notable improvement in medium and thick plates. Production of medium and thick plates and rebars saw a significant rebound this week; except for medium and thick plates, there was a contraction in apparent demand; inventory continued to decline, although the margin narrowed.

Separately, the thread production continues to rise, while the apparent demand starts to oscillate at a high level, with the upward momentum weakening. However, inventory continues to decrease significantly. Overall, although the supply and demand have slightly weakened, the extent is limited. This week, the hot-rolled coil production and apparent demand remain high, with a slight reduction in inventory, maintaining an overall tight balance.

Overall, prior to the key July meeting, we anticipate a continuous stream of favorable domestic economic support policies. The macroeconomic outlook for the entire month of June is expected to remain positive. International financial institutions such as Goldman Sachs, Morgan Stanley, and Deutsche Bank have all raised their growth expectations for the Chinese economy this year. In light of the strong performance of the Chinese economy in the first quarter of this year, the Chief Economist for JPMorgan Chase in China has already increased the GDP growth forecast for the year from the initial 4.9% to 5.2%. The expectation of foreign capital for a sustained positive trend in the domestic economy is also growing stronger.

In the industry sector, while the fundamentals of mature products still show a preference for resilience, the upcoming off-season will limit demand growth. Recently, spot prices have gradually increased, and the gap between the market and actual prices has widened, indicating a need for a correction in both short-term spot prices and futures. Overall, we continue to maintain our view of a mid-term震荡偏强的 trend, with a short-term correction expected.