The increasing downward pressure of the global economy, the uncertain trend of Sino-US trade war, China's increasing counter-cyclical regulation, more relaxed monetary policy, the pressure of RMB devaluation still exists, and the growth rate of steel production, all aspects of the macro-trend of the steel market in the year have been constructed and become the most important influencing factors.

01

Increased downward pressure on the global economy has prompted many countries to adopt stimulus measures

After entering the second half of the year, the downward pressure of the global economy has been increasing, especially the long-term and short-term interest rates of major countries have been hanging upside down. The world's authoritative organizations and institutions have lowered the world economic growth rate one after another. Most people believe that the U.S. economy will fall into recession. To this end, countries around the world have taken incentives to try to promote economic growth. From the point of view of the measures currently implemented, the main ones are easing monetary policy, expanding fiscal expenditure and subsidizing funds. Among them, the president of the European Central Bank has given a strong hint to cut interest rates. In September, the ECB is expected to adopt a more aggressive asset purchase plan, which is to increase monetary easing. The Federal Reserve is expected to cut interest rates twice in September and October, at 25 basis points each, and possibly even 50 basis points in September. Global easing of monetary policy is conducive to economic growth, but it will also spawn future asset and commodity price bubbles, including black series commodity prices and stock market asset price bubbles, which is unavoidable and is the necessary cost to avoid economic recession.

02

China's economy encounters external adverse winds, and counter-cyclical adjustment is bound to intensify.

The biggest adverse wind in China's economy this year is the rise of trade protectionism after the blockage of global economic growth. In particular, the Trump Administration of the United States initiated and increased trade wars, and expanded to "technology wars" and "currency wars". It is for this reason that in the first seven months of 2019, China's steel exports fell by 2.9% compared with the same period last year, while the export value of mechanical and electrical products increased by only 6.1% compared with the same period last year, and the growth rate fell by 8.5 percentage points. The sharp decline in export growth of mechanical and electrical products has exerted great pressure on the domestic steel consumption manufacturing industry, resulting in a year-on-year decline in the output of automobiles, steel ships, machine tools, power generation equipment, refrigerators, washing machines, air conditioners and other products in the first seven months of this year, or a year-on-year decline in the growth rate, thus weakening steel demand. Affected by this, it is expected that China's counter-cyclical regulation will be strengthened in the future. In addition to further reform and opening up and expanding household consumption, strengthening investment in infrastructure and manufacturing industries will continue to be an important hand in stimulating economic growth. From the point of view of demand structure, the steel industry will benefit more after the counter-cyclical adjustment is strengthened.

03

Resolving the downward pressure of the economy and combining fiscal and monetary policies

A more active fiscal policy and a more relaxed monetary policy will undoubtedly be an important aspect of counter-cyclical adjustment at the decision-making level. More active fiscal policy is now on the way. Statistics from the Ministry of Finance show that in the first seven months of this year, the national fiscal revenue increased by 3.1% and the fiscal expenditure increased by 9.9%. Among them, the effect of tax reduction is remarkable. From January to July, the national tax revenue increased by only 0.3%, and the growth rate fell by 13.7 percentage points compared with the previous year. In the same period, the national general public budget expenditure increased by 9.9%, the growth rate increased by 2.6 percentage points compared with the previous year, which maintained a strong expenditure intensity. While reducing taxes and fees, increasing fiscal expenditure will be beneficial to the healthy development of China's economy. It is expected that its positive effects will gradually appear in the steel market.

In terms of relatively loose monetary policy, although we emphasize that China's monetary policy is self-centered and the current interest rate level is reasonable, it is expected that the People's Bank of China will also "keep pace with the times" and implement a more relaxed monetary policy, including standard reduction and interest rate reduction, under the general interest rate reduction environment of the global central bank and other factors. It's possible.

04

Moderate depreciation of RMB and overall improvement of steel market

After entering the second quarter of this year, the depreciation rate of RMB against the US dollar has accelerated, especially recently when the exchange rate of RMB against the US dollar broke seven. The main reasons are the downward pressure of China's economy, the provocation of trade war between the Trump government and the overweight trade, and the pressure of the US Federal Reserve to cut interest rates. As the above market factors still exist, there will still be some depreciation pressure on the exchange rate of RMB against the US dollar in the future. Of course, this depreciation pressure is limited and controllable, and will never lead to a sharp drop in the RMB exchange rate.

The moderate devaluation of the RMB against the US dollar, driven by market forces, has helped China's steel market as a whole. It is mainly to enhance the export competitiveness of China's steel products, including its direct and indirect exports. At the same time, it will also increase the import cost of smelting raw materials and energy, and form the support of steel price.

05

The short-term impact of production restriction on supply-demand relationship is still relatively high.

For some time, "production restriction" has become the subject of repeated speculation in the steel market. In fact, the above-mentioned themes have a greater impact on the short-term supply-demand relationship. For example, in July, the daily output of crude steel decreased by 169,000 tons compared with last month, which eased the pressure of market supply. However, from the cumulative point of view, the output of steel and steel in China has not been restrained, but has made great progress, and even reached double-digit growth rate. The yield of gluten increased by more than 20% year on year. Such a high output supply will certainly create market pressure, especially the psychological pressure of market participants.