Iron & Steel Industry and market under new trends

Transcription

1 Iron & Steel Industry and market under new trends JIA Liangqun May 29, 2014

2 GDP per capita The Chinese Dream is no dream Western Europe China Year

3 What do these activities since the 18 th CPC National Congress indicate? 1. Disciplinary constraint 2. Reinforcement of mental strength 3. Strict organizational management 4. Deterrent with strict punishment Establish prestige among cadres, authority among masses, and ensure stability of the society Build foundation for greater achievements Realize the Chinese Dream through modernization of national governance system and governance capabilities!

4 Trend of the times China s politics usher in the time of XI Jinping; An important stage for transformation of China s economy! 2013 represents the year of planning, mobilization, deployment and preparation where new leaders establish authority will be the year of concretization, implementation, enforcement and endeavor where reforms and innovations will be frequently carried out

5 Investment-backed economy is still subject to significant risk of downward pressure Didn t we make it through the year of 2013? Quarter-on-quarter GDP growth GDP: quarter-on-quarter Unit: % Arduous transition period for structural adjustment and gear-shifting phase for economic growth rate. The L-shape curve of economic development remains evident. The downward pressure will remain strong before new growth points that can maintain sustainable economic growth are identified.

6 Iron & Steel Industry under New Trends and characteristics of market 1. China s iron & steel demand will soon hit a record high 2. Inconsistent change of iron & steel production capacity in terms of regional structures 3. Pressure transmitted to downstream industries with significant changes in value of commodities 4. Capita, technology, talents and customer resources pooled together by competitive enterprises 5. Informatization, industrialization and modern finance transform traditional industries 6. Green manufacturing will become a sustainable and valued element 7. Production capacity and building capability shift to overseas

7 全国 北京 天津 河北 山西 内蒙古 辽宁 吉林 黑龙江 上海 江苏 浙江 安徽 福建 江西 山东 河南 湖北 湖南 广东 广西 海南 重庆 四川 贵州 云南 西藏 陕西 甘肃 青海 宁夏 新疆 Investment growth in 2014 may underpeform Difference between fixed asset investment growth rate and that of previous year 2012 年以来地固定资产投资增长速度与上年的差值 ( 百分点 ) since 2012 (%) 40.0% % 20.0% 10.0% 0.0% -10.0% -20.0% Note: Based on the investment growths nationwide over the last 3 years, local authorities lowered both their GDP growth and investment growth objectives for 2014, especially in western China.

8 Fixed asset investment growth will hit a record low of the past decade Fixed asset investment growth Actual fixed asset investment: accumulated month-on-month Unit: %

9 Real estate and steel products market 房地产景气指数与钢材价格指数的关系 Real estate climate index against steel price 108 房地产景气指数与钢价的相关性 Correlation between real estate climate index and steel price Real estate climate index steel price Seen from the perspective of iron and steel products demand, we should be concerned about the stagnation and drop of real estate prices instead of their rise.

10 With deflation in manufacturing industry, structural adjustment for traditional industries will need more time 钢材价格与 PPI-CPI 的关系 Relationship between steel price and PPI-CPI 钢价指数 Steel price index PPI-CPI

11 Profit rate of major iron & steel enterprises remain at low levels 15.0% Profit rate 重点钢铁企业销售利润率 of major iron & steel enterprises 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0%

12 China per capita steel consumption is likely to have reached historic peak kg 人均粗钢消费 Per Capita steel consumption Germany 德国日本 Japan 美国 USA 中国 China

13 Steel production growth subject to extreme limits EU9+USA kg 人均粗钢产量 Per Capita Steel Production Production in 1973 Population in 1973 Per capita steel production Per capita steel production Accumulative steel production Per capita accu. production 10,000 tons persons tons kg 10,000 tons tons Germany 德国日本 Japan 美国 USA 中国 China China s steel production amounted to 780 million tons in 2013, with a per capita production of approx. 580 kg based on a population of 1.35 billion, which is higher than peak steel production of EU9, and close to that of EU9 plus USA.

14 Market pressure shifts to steel plants Steel inventory and major steel plants inventory in 26 cities (steel plants inventory indicated on left axis) Major steel plants total inventory: steel inventory (per 10 days) in 10,000 tons Major steel inventory in China: *total (weekly) in 10,000 tons

15 Population and industry structure results in differences among different regional markets in China China s population density Shanghai, a municipality (2012 pop 23,710,000) Beijing, a municipality (2012 pop 20,693,000) Tianjin, a municipality (2010 pop 12,938,224) Guangzhou, a sub-provincial capital (2013 pop 14,000,000) Shenzhen, a sub-provincial city and previous special economic zone city (2010 pop 10,357,938)

16 Land reserve indicates steel demand hotspots in the future Regional distribution of land reserve operated by top 50 enterprises as of Nov 2013 Industr ial Comm ercial Reside ntial Unit: hectare As indicated by data on distribution of industrial, commercial and residential land in different regions published on 100njz.com, East China, with active land supply and demand, has always been a delicious cake for property developers. Especially the recent enclosure movement by developers in first-tier cities contributes to a prosperous residential land market in this region. Source: 100njz.com Northeast North China East China South China Central China North west South west

17 Regional trends in domestic market Regions along the Yangtze River and its southern area will account for the majority of steel production in the future, while a reduction in production capacity for architectural steel market in northern China has been planned, which is attributed to the economic geography and raw materials supply in China, i.e., the competition in terms of general products for enterprises is essentially the competition for lower logistic costs. Based on current land transactions and real estate climate, the west and north-going trend in iron & steel market driven by economystimulating policies since 2009 may be reversed to east and southgoing in the future. Such change is not attributed to governmental policies, but driven by the principle of marketization.

18 Ore inventory is likely to hit a record high Ore in-port inventory and price Total port inventory of imported iron ore: total with same statistical scope (weekly), in 10,000 tons Spot price of Lianyungang: Australian BP powder (61.5%) (daily) Unit: wet tons

19 Rise in proportion of imported iron ores Ore in-plant inventory and price Spot price of Lianyungang: Australian BP powder (61.5%) (daily), in Yuan/wet ton Imported ore inventory: proportion (weekly), in % Imported ore inventory: average no. of days (weekly), in days

20 Finance status worse than that at beginning of bear market in 2011, despite slight recent improvement Absolute steel price index and interbank offered rate Myspic absolute steel price index: composite (daily), in Yuan/ton Shanghai Interbank Offered Rate (SHIBOR): 1 month (daily), in %

21 Market price approaches the price level during financial crisis Absolute steel price index Myspic absolute steel price index: composite (daily), in Yuan/ton Note: the price has hit a record low and approaches the price level during financial crisis. The current price level is at the lowest bottom over the past decade, but significant resistance is expected for further price drop, which may be possible only with further deterioration of macro environment or decrease of raw material costs.

22 Interbank fund starts to loosen recently Steel price and offered rate Shanghai Interbank Offered Rate (SHIBOR): 2 weeks (daily), in % Rebar composite price: HRB400: 20mm: average price (daily), in Yuan/ton Significant drop in offered rate indicates loosening in fund control! As estimated based on historical experience, the market rebound arising therefrom is expected at the end of March or beginning of April.

23 Rebar steel is technically still in the channel of bear market Rebar index (SHME 6880) monthly curve Bear market begins in Sept 2011

24 Price continues to fluctuate, with downturn trend unchanged despite short-term rebound Absolute steel price index and quarter-onquarter GDP growth GDP: quarter-on-quarter, in % Myspic average steel price index: composite (season), in Yuan/ton

25 Long-term fluctuation is expected at low levels Absolute steel price index and quarter-onquarter GDP growth GDP: quarter-on-quarter, in % Myspic average steel price index: composite (season), in Yuan/ton As a result of L-shaped growth of China s economy, the economy will continue to fluctuate, as emphasized by the state s leader.

26 Thank you! MP :