The domestic steel market will fluctuate and rise in October

In September 2024, affected by multiple factors such as the expectation of the traditional construction peak season, the gradual recovery of market transactions, the relatively weak cost, and the release of a package of financial policies, the domestic steel market showed a trend of first suppression and then rise, and a volatile rebound. According to the monitoring data of Lange Steel Network, as of the end of September, the national comprehensive steel price of Lange Steel was 3,639 yuan/ton, an increase of 116 yuan/ton from the end of the previous month, a month-on-month increase of 3.3%, and a year-on-year decrease of 11.4%. From the monthly average, it continued to move downward compared with the previous month. In September, the average national comprehensive steel price of Lange Steel was 3,494 yuan/ton, a decrease of 57 yuan/ton from the previous month, a decrease of 1.6%.

Looking ahead to October, with the introduction of a package of financial policies and the convening of the Political Bureau meeting, macroeconomic policies are still being implemented. October is still in the peak season of demand, and downstream demand is expected to pick up. Steel production will rebound from a low level, and cost support resilience will reappear. Lange Steel Big Data AI Assisted Decision-making System predicts that the domestic steel market is expected to show a fluctuating upward trend in October 2024.

The factors supporting the volatile rise in domestic steel market prices in October are mainly the following:

First, the global interest rate cut cycle has started, which has supported commodity prices

As the US inflation level falls, the Federal Reserve has started a rate cut cycle, which will be beneficial to precious metals and internationally priced commodity prices in the medium and long term. The Federal Reserve announced on September 18 local time that it would lower the target range of the federal funds rate by 50 basis points to a level between 4.75% and 5.00%; this is also the first rate cut by the Federal Reserve in 4 years. Other regions are also in the interest rate cut channel. On September 12, the European Central Bank announced a 25 basis point interest rate cut to 3.5%, which is also the second interest rate cut by the European Central Bank this year. After the Fed cut interest rates, the Hong Kong Monetary Authority, Kuwait, Bahrain, the United Arab Emirates, Qatar, Saudi Arabia, South Africa and other countries also cut interest rates. With the start of the interest rate cut cycle in various countries, the global monetary policy tends to be loose, which is conducive to the global economic recovery and to supporting commodity prices.

Second, the domestic package of policies continues to take effect, effectively boosting market confidence

At present, financial policies to support the development of the real economy are constantly being introduced and implemented, effectively boosting market confidence. On September 24, the People's Bank of China stated that it would lower the central bank's policy interest rate and reduce the 7-day reverse repurchase operation rate by 0.2 percentage points from the current 1.7% to 1.5%, guiding the loan market quotation rate and deposit rate to decline simultaneously, and maintaining the stability of the net interest margin of commercial banks. At the same time, it will also reduce the interest rate of existing mortgage loans and unify the minimum down payment ratio of mortgage loans, guiding commercial banks to reduce the interest rate of existing mortgage loans to near the interest rate of newly issued mortgage loans, with an average reduction of about 0.5 percentage points. Unify the minimum down payment ratio of mortgage loans for the first and second homes, and reduce the minimum down payment ratio of second home loans at the national level from 25% to 15%. In addition, according to the central decision-making and deployment, the People's Bank of China will firmly adhere to the supportive monetary policy stance, increase the intensity of monetary policy regulation, and improve the precision of monetary policy regulation. The People's Bank of China will also create new policy tools to support the development of the stock market. On September 25, the central bank carried out a 300 billion yuan 1-year medium-term lending facility (MLF) operation, with a winning rate of 2%, which was 2.3% previously. After the operation, the balance of the medium-term lending facility was 687.8 billion yuan. On September 27, the People's Bank of China announced that it would lower the deposit reserve ratio of financial institutions by 0.5 percentage points; the interest rate of the 7-day reverse repurchase operation in the open market was adjusted from the previous 1.7% to 1.5%.

On September 26, the Political Bureau of the CPC Central Committee held a meeting to analyze and study the current economic situation and deploy the next economic work. The meeting emphasized that it is necessary to increase the countercyclical adjustment of fiscal and monetary policies, ensure necessary fiscal expenditures, and do a good job in the "three guarantees" at the grassroots level. It is necessary to issue and use ultra-long-term special treasury bonds and local government special bonds to better play the role of government investment in driving development. It is necessary to reduce the deposit reserve ratio and implement a strong interest rate cut. To promote the real estate market to stop falling and stabilize, we must strictly control the increase in commercial housing construction, optimize the stock, improve the quality, increase the loan issuance of "white list" projects, and support the revitalization of idle land. We must respond to the concerns of the people, adjust the housing purchase restriction policy, reduce the interest rate of existing mortgage loans, and speed up the improvement of land, fiscal and taxation, and financial policies to promote the construction of a new model of real estate development. With the continuous implementation of various policies, the domestic economy will continue to recover in the later period.

Third, the demand side of "Silver October" is expected to continue to recover

In September, with the improvement of climatic conditions and the favorable domestic and foreign policies to boost market confidence, steel prices rebounded, driving the demand for steel to increase, and the market transaction volume rebounded significantly compared with the previous month. According to statistics from Lange Steel Network, the average daily transaction volume of construction steel in 20 key cities in September was 144,000 tons, an increase of 17,000 tons from the previous month, and a month-on-month increase of 13.7%; the monthly average daily shipments of hot-rolled coils in 16 key cities across the country were 43,000 tons, an increase of 4,000 tons from the previous month, and a month-on-month rebound of 10.7%; the average daily shipments of medium and thick plates of 105 key circulation enterprises in 15 key cities across the country were 51,000 tons, an increase of 8,000 tons from the previous month, and a month-on-month rebound of 18.2%.

At present, major measures such as "two heavy" and "two new" are being accelerated; the "combination punch" of funds such as ultra-long-term special treasury bonds, central budget investment, local government special bonds, and the government's additional treasury bonds in 2023 are constantly being implemented, and project construction is expected to be accelerated, and the amplification effect driven by government investment will continue to be released. Data from the Special Bond Information Network shows that as of the end of September, the issuance scale of new special bonds issued by local governments in my country in 2024 has reached 3132.47 billion yuan, accounting for 80.3% of the total issuance amount, an increase of 18.1 percentage points from the end of August; from the monthly data, 777.39 billion yuan of special bonds were issued in August, a new high for the year; 580.14 billion yuan were issued in September, although there was a certain decline from the previous month, but it still remained at the second lowest level of the year. It can be seen that the issuance of special bonds in the last two months of the third quarter has accelerated significantly. At present, there is still more than 700 billion yuan of room for the issuance of special bonds. Generally, special bonds will be issued by the end of October, so the issuance speed in October is still expected to remain high. The steel market is still in the peak season in October. With the support of various policies, the funds for engineering projects are gradually in place, and the progress of construction is expected to accelerate; at the same time, the prosperity of the manufacturing industry rebounded in the contraction range in September, the production index rebounded to the expansion range, and the new order index rebounded in the contraction range, which is expected to drive the release of steel demand and maintain a recovery trend.

Fourth, the bottom recovery trend of the cost side is gradually emerging

As steel prices continue to fluctuate and rebound, the raw material side also shows a bottom rebound trend. According to the monitoring data of Lange Steel Network, as of the end of September, in terms of iron ore, the price of 66% grade dry basis iron ore concentrate in Tangshan was 950 yuan/ton, up 35 yuan/ton from the low point in September; the market price of 61.5% Australian powder ore in Rizhao Port was 735 yuan/ton, up 55 yuan/ton from the low point in September. In terms of coke, the price of secondary metallurgical coke in Tangshan was 1,600 yuan/ton, up 100 yuan/ton from the low point in September. In terms of scrap steel, the price of heavy scrap in Tangshan was 2,190 yuan/ton, up 50 yuan/ton from the low point in September. According to the cost monitoring data of Lange Steel Research Center, after the steel production cost fell to the lowest in early September, it showed a gradual recovery trend. As of the end of September, the tax-free cost of ordinary carbon billet increased by 73 yuan/ton from the low point at the beginning of the month, an increase of 2.9%. Raw material prices have bottomed out and rebounded, driving the cost support for the steel market to gradually strengthen.

In summary, under the influence of factors such as the continued implementation of macroeconomic policies, the obvious boost in market confidence, the low supply side, the expected recovery of demand, and the gradual stabilization and rebound of costs, the market is expected to show a volatile upward trend in October. The current price increase is relatively fast, and we also need to be vigilant that after the rapid recovery of steel companies' profits, large-scale resumption of production may have a significant impact on the trend of steel prices.