The Zhitong Finance App learned that Huafu Securities released a research report saying that in 2023, China's crude steel production will be about 1,019 billion tons, which is basically the same as the previous year. According to the bank's estimates, in 2023, the key downstream industries (real estate+infrastructure+automobiles+ships+household appliances) totaled 582.29 million tons. Among them, the amount of steel used in infrastructure and manufacturing increased year on year, and the key downstream industries were still down about 4.6 million tons year on year due to real estate. The bank believes that real estate's drag on steel demand in 2024 is expected to be reduced. At the same time, strong infrastructure demand expectations and the continued boom in the manufacturing industry will gradually become the main driving force for steel demand, and total steel demand is expected to grow steadily in 2024.
Huafu Securities's views are as follows:
Crude steel production remained flat last year, laying a solid foundation for achieving a dynamic balance between supply and demand this year.
In 2023, China's crude steel production was about 1,019 billion tons, which is basically the same as the previous year. Judging from monthly data for 2023, overall crude steel production from January to November was higher than the same period in 2022. The production control and production limit process was lower than market expectations, and crude steel leveling policy documents were not implemented, so the market expected that it would be difficult to balance production throughout the year. However, crude steel production plummeted to 67.44 million tons year on year in December, down 13.41% year on year. The final production for the year was only 6.08 million tons more than last year, basically meeting the expected target of crude steel level control. The bank believes that in the context of China's economic recovery facing insufficient effective demand and overcapacity in some industries, government departments are accurate and clear, and that policy restrictions on production capacity and output are effective and strong. Steel is an important industry sector for supply-side reforms to resolve excess capacity, and production restrictions will continue and production pace will be optimized in the future. Overall, China's crude steel production remained flat last year, laying a solid foundation for achieving a dynamic balance between steel supply and demand this year.
Steel exports have become a stabilizer for the balance between supply and demand, but exports are expected to fall this year.
According to the bank's calculations, the apparent consumption of crude steel in 2023 was 931 million tons, a year-on-year decrease of 26.79 million tons/ 2.8%, and domestic steel consumption declined. On the other hand, the sharp increase in steel exports contributed an important force to the balance between supply and demand. The annual crude steel export was 99.3 million tons, up 36.69% year on year; steel exports were 90.26 million tons, up 34.08% year on year. At the same time, imports of crude steel and steel have declined to a certain extent, and net steel exports were even stronger compared to the same period last year. In terms of indirect steel exports, automobile exports increased 57.9% year on year, ship exports increased 23.2% year on year, home appliance exports increased 11.2% year on year, and the number of important downstream exports of steel also ushered in significant growth. The bank believes that the current international situation is facing a lot of uncertainty. Overseas economic recovery is weak, and there are many factors disrupting international trade relations. Combined with domestic carbon peaking and carbon neutrality targets, various factors such as steel and other high-energy industries are the focus of supply-side reforms, and the willingness of steel mills to cut production when industry profits are bottoming out determine that at this stage, China's steel production is still mainly to meet domestic demand, and large-scale exports will not be sustainable. It is expected that direct steel exports will decline somewhat this year.
Downstream demand for steel is facing structural adjustments, the drag on real estate has gradually decreased, and the overall demand for steel has stabilized.
The performance of the real estate market was sluggish in 2023. The area of new housing start/construction/completed housing was -20.91%/-7.36%/15.78%, respectively. However, the bank believes that real estate is being built at an accelerated pace, that bonded buildings are progressing in an orderly manner to support construction and completion, that policies support the financing needs of housing enterprises, and that the “three major projects” have all sent positive signals. According to the bank's estimates, in 2023, the key downstream industries (real estate+infrastructure+automobiles+ships+household appliances) totaled 582.29 million tons. Among them, the amount of steel used in infrastructure and manufacturing increased year on year, and the key downstream industries were still down about 4.6 million tons year on year due to real estate. The bank believes that real estate's drag on steel demand in 2024 is expected to be reduced. At the same time, strong infrastructure demand expectations and the continued boom in the manufacturing industry will gradually become the main driving force for steel demand, and total steel demand is expected to grow steadily in 2024.
Risk warning: 1) the strength of policy control and production limits falls short of expectations; 2) the progress of domestic economic recovery falls short of expectations; 3) the risk of overseas economic recession exceeds expectations.