Mysteel's quick surveys showed that in June, some 4,858 construction projects commenced across China with a total investment of Yuan 3.5 trillion, which was up 48% on month or 45% on year. For H1 in total, investment in new projects was up 142% on year, providing a good basis for steel demand in H2, according to him.

You can't actually increase investment in construction projects by 142% and expect to use less steel. It's just not logical. But then, when has the CCP (or the stockmarket) ever been logical?

China's steel prices to see more growth in Aug - Mysteel

Support from China’s macro-economic environment and steel-market fundamentals may lead Chinese
steel prices to record further gains in August, albeit with some fluc...

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SteelMint Bureau

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2 Aug 2021, 10:26 IST

Support from China's macro-economic environment and steel-market fundamentals may lead Chinese
steel prices to record further gains in August, albeit with some fluctuations, Wang Jianhua, Mysteel's
chief analyst, shared in his latest monthly outlook report.

"There's a growing market consensus (that prices will move northwards) and confidence is growing,
but on the other hand, buyers are increasingly worried about how high prices might rise too,"
he observed.

At the macro policy level, Beijing's goal of stable economic growth will be the "anchor" for growth
in steel prices, Wang maintained.

Due to the fast pace of growth recorded in H2 last year, China is facing greater pressure to maintain
on-year economic growth during H2 this year, and that's one reason why the central government is
introducing more supportive policies to stabilize the economy and keep growth on track, he noted.

On July 14, China's central bank announced it was lowering the reserve requirement ratio of financial
institutions by 0.5 percentage point, an announcement which surprised market watchers as China's
on-year GDP growth already stood high at 7.9% in Q2 and 12.7% for H1, according to Wang.

"Even though the reserve ratio cut was issued mainly to offset liquidity losses caused by the
expiration of Medium-term Lending Facility and to ensure there's cash in the economy after
domestic enterprises meet their tax obligations, it will still help to maintain stable liquidity and
ease the financial constraints of the real economy," Wang stated.

The central government may "leave room" for other policies to be introduced to further release
liquidity, given the downward pressure on China's economy and remaining uncertainties over
the Sino-US relationship, Wang said.

On the other hand, as of June, the release of new government bonds for special purposes was only
Yuan 1.7 trillion ($263.3 billion), or only 27% of the annual allocation. In previous years, the proportion
normally reached around 60% by H1, Wang noted.

"With only a quarter of the funds issued, we can see how much and how fast such bonds will be
issued later," Wang stated. Around 25% will be used in infrastructure construction projects, which
will improve the financial conditions of the building contractors involved, he said.

Mysteel's quick surveys showed that in June, some 4,858 construction projects commenced across
China with a total investment of Yuan 3.5 trillion, which was up 48% on month or 45% on year.
For H1 in total, investment in new projects was up 142% on year, providing a good basis for steel
demand in H2, according to him.

Regarding the domestic steel market this month, Wang indicated that fundamentals will be the
"propeller" of steel price increases.

On the supply-side, steel supply will fall significantly both on-month or on-year in August, given
Beijing's decision to curb crude steel output, Wang projected. He noted that at least 14 provinces
or cities nationwide had held meetings about cutting crude steel output, requiring that output will
not be higher than last year's.

Based on an on-year increase of 59.5 million tonnes in crude steel output in H1, in this half of the
year, daily average crude steel output needs to be controlled within 2.7 million tonnes, or lower
by 404,100 tonnes/day from the level in June, he calculated.

Meanwhile, demand will improve from July. Domestically speaking, August will see a revival of
demand after the floods in many parts of China in late July had impacted steel deliveries and steel
usage.

Regarding export demand, even though China has decided to cancel export tax rebates on the
remaining 23 steel products effective August 1, steel exports will not be affected much, as
Chinese steel products are still cheaper than those of overseas competitors, according to Wang.

So, he believed that August will see an acceleration of de-stocking of domestic steel products.

Mysteel's survey showed that as of July 29, total inventories of the five major products comprising
rebar, wire rod, hot-rolled coil, cold-rolled coil and medium plate held by the surveyed traders in
132 cities climbed to 23.5 million tonnes - making for the seventh straight weekly increase or up
3.1% on month or 1.9% on year.

Stocks of the five products at mills, on the other hand, declined for four consecutive weeks to
reach 6.1 million tonnes as of July 28, down 9.3% on month or 8.3% on year, according to
Mysteel's survey.

Written by Olivia Zhang, [email protected]

https://www.steelmint.com/insights/chinas-steel-prices-to-see-more-growth-in-aug-mysteel-236066