The疲软trend of the steel market is hard to change in the short term after the central bank cuts the reserve requirement ratio. On February 18, the People's Bank of China announced that starting from February 24, the RMB deposit reserve ratio for deposit-taking financial institutions would be reduced by 0.5 percentage points. What impact will this move have on the domestic steel market? Some operators believe that it will not have any substantial impact in the short term, and the current weak and sluggish operating trend will not be fundamentally changed because of this, but in the long run, it will produce a positive effect.
Some steel trading company presidents and frontline sales staff at the market forefront told reporters that after the central bank cut the reserve requirement ratio, the steel market remained depressed and prices continued to fall. Yesterday (February 20), the price of rebar and wire rod in the Shanghai market continued to fluctuate and decline, with rebar prices falling another 20-30 yuan per ton compared to last Friday. Although this is good news for the steel market, it has not generated "anti-fall" momentum. The positive effects truly manifesting in the steel market will take some time and cannot be immediate.
On this day, some frontline salespeople at the market forefront still had no sales volume. A salesperson told reporters that during this time in previous years, especially on Mondays, market transactions were quite active, with many customers coming to purchase goods, sometimes even being too busy to handle everything. However, the current market is quite quiet, with few customer inquiries about prices, resulting in sluggish business. Yesterday on Monday, only a few pieces of rebar were sold, and the central bank's reduction in the reserve requirement ratio will not have any impact on the steel market for now.
Analysts believe that the central bank's first cut in the reserve requirement ratio within the year signals a shift towards moderately loose monetary policy, which undoubtedly helps stabilize market sentiment and will generate a certain positive effect. However, from the perspective of the current supply and demand fundamentals of the domestic steel market, the positive effects of policy alone are probably insufficient to reverse the overall downward trend in domestic steel prices. For steel prices to truly stop falling and recover, more positive triggers are needed.
From the supply side, there was a noticeable increase in steel production in February. According to statistics from the China Iron and Steel Association, the average daily crude steel output of key enterprises in the first ten days of February was 1.5645 million tons, an increase of 5.55% compared to late January; the estimated national average daily crude steel output was 1.7045 million tons, an increase of 1.91% compared to late January. From the recent large-scale price reductions by steel mills, it can be seen that contract organization has faced significant pressure. Comparing the current cost of steel mills with market prices, if raw material prices do not experience a significant supplementary fall later, steel mills whose production has just recovered may likely have to return to a loss-making situation and reduce production again.
From the demand side, data released by the Ministry of Railways shows that railway fixed asset investment in January was 12.2 billion yuan, a decrease of 69.6% compared to the same period last year. Analysts point out that even considering the Spring Festival holiday factor, the extent of the drop in railway investment is unprecedented. Recently, the National Bureau of Statistics released housing price data for January 2012, showing that among the 70 large and medium-sized cities included in the statistics, new commercial housing prices stopped rising across the board. Prices fell in 48 cities and remained unchanged in 22. In the 40 cities that implemented commercial housing purchase restrictions, average housing prices fell by 0.17%, with no city experiencing a month-on-month increase. This indicates that the turning point in housing prices formed since the fourth quarter of last year is deepening, and the real estate market regulation that has persisted for two years is further showing its effects. As the largest demand sector for construction steel, the real estate and infrastructure construction industries are currently in a low period, making the overall domestic demand for construction steel less than optimistic.
Some steel traders believe that the first cut in the reserve requirement ratio within the year is somewhat beneficial to market sentiment, but under the circumstances where the supply and demand fundamentals have not improved, it will still be difficult for domestic steel prices to truly stop falling and recover. In the short term, domestic steel prices may remain in a situation of bottom-seeking volatility.
For the second quarter steel market, many steel traders are full of expectations, believing that the central bank's cut in the reserve requirement ratio has alleviated market capital pressures to a certain extent. This is the second time the central bank has cut the reserve requirement ratio, and after the adjustment, the deposit reserve ratio for large financial institutions is 20.5%, while for small and medium-sized financial institutions, it is 17%. A rough estimate suggests that the scale of funds unfrozen by this reduction in the reserve requirement ratio is around 400 billion yuan. Thus, for downstream end users and steel trade circulation enterprises, the problem of capital shortage will gradually be alleviated, boosting steel demand. At the same time, it also boosts the confidence of steel traders to a certain extent. Currently, although some steel trading companies continue to lower their quotations, as temperatures gradually rise, a batch of construction projects will start one after another, increasing downstream terminal demand, and market transactions are expected to improve. It is anticipated that by March or the second quarter, building steel market prices will hopefully touch bottom, stabilize, and steadily increase.