Report on the 23rd: Since early summer, the steel market has been "not weak in the off-season." Since August, rebar futures prices have climbed steadily. Yesterday, the main 1901 contract rose to 4,418 yuan/ton at one point, hitting a new high since January 15 this year. Although it later pulled back and finally closed at 4,334 yuan/ton, down 36 yuan or 0.82%, prices remain high. In the spot market, billet prices also rose, reaching 4,110 yuan/ton on August 20, a nearly three-year high.
As the traditional "Golden September and Silver October" peak season approaches, the steel market will face three scenarios: First, on production restrictions, this year is the second year of environmental policy implementation. Environmental protection efforts did not ease in the first half, and production restrictions are expected to continue strengthening in the second half. The room for steel output growth is limited, which may keep steel mills' high profits sustained. Second, on infrastructure, in the second half, real estate construction starts are relatively strong, and approvals for projects such as subway construction will also provide some boost to rigid steel demand. Third, on manufacturing, since the second half, the market has consistently shown "strong longs, weak flats." In July, data on new ship orders, air conditioners, and automobiles all declined, so the later trend of flat products will depend on downstream demand. Overall, positive factors in the steel market outweigh negative ones. Demand during the "Golden September and Silver October" period is acceptable, and inventories may be further digested. Steel prices are expected to run at high levels in the second half.
Tangshan has upgraded its production cuts again, with continuous positive factors on the steel supply side. Mysteel's survey of 163 steel mills shows a blast furnace operating rate of 66.16%, flat month on month, and a capacity utilization rate of 82.81%, up 9.5% month on month. Recently, Tangshan has continued to tighten environmental protection due to its poor air quality ranking. According to reports, Tangshan may implement heating-season staggered production restrictions ahead of schedule on September 1. Environmental protection has now become a smoothing agent for regulating steel supply. Subsequent steel supply releases are expected to be limited, which may continue to support steel prices.
Considering that stricter environmental production restrictions on the supply side curb capacity release, steel demand is not weak in the off-season, and infrastructure shortfall-filling in the second half is expected to further boost demand, steel prices are expected to remain high in Q3, and the corresponding high profitability of steel and steel mills will also be sustainable.
On the other hand, the previously held Politburo meeting proposed filling infrastructure shortfalls, which may further enhance infrastructure's pull on steel demand in the second half. Current real estate demand is not weak in the off-season. As the "Golden September and Silver October" arrives, steel demand is expected to rise further. Combined with environmental production restrictions on the supply side, the steel market trend is highly sustainable. Industrial Securities recommends focusing on high-elasticity targets: Valin Steel, Liuzhou Steel, Sansteel Minguang, Shaoguan Steel Songshan, Maanshan Iron & Steel, Nanjing Iron & Steel, and Xinyu Iron & Steel.
The Blue Sky Defense War is being intensified, with focus on steel stocks that benefit. Stricter environmental production restrictions constrain steel supply. Although social inventories rose slightly last week, there is no backlog. Considering the subsequent infrastructure push in the second half, steel demand is steady with an upward trend. Steel prices still have room to rise, and profit expansion is expected. Later, it is recommended to continue focusing on low-valuation, high-elasticity target companies: Shaoguan Steel Songshan, Valin Steel, Xinyu Iron & Steel, and Nanjing Iron & Steel.