The main reasons for the bullish steel price in April:

First of all, the steel supply and demand relationship is expected to continue to improve, or that the expansion of demand will be greater than the expansion of supply. HSBC's February PMI preview value mid-product inventory is 49.7, a decrease of 0.7% from the previous month, indicating that the company's finished product inventory pressure is still reducing and is in a shrinking area. According to statistics from the National Bureau of Statistics, the inventory of finished products of industrial enterprises above designated size increased by 8.5% year-on-year, and the growth rate dropped significantly, indicating that the current supply-demand relationship is improving. In April, steel supply faced triple pressures.

First, large-scale losses in steel companies suppressed output growth. According to my steel survey of 163 steel plants, 61.35% of the companies lost money. Once this situation is not continuously improved, the enthusiasm of enterprises to expand production is not high.

The second is that corporate capital is still tight and restricts expansion of production. As of the end of February, the average payback period of accounts receivable from industrial enterprises above designated size was 39.5 days, which was at a relatively high level, while the year-on-year growth rate of fixed asset investment funds fell sharply to 6.7%, indicating that the liquidity of funds between enterprises has not improved. The raw material inventory in the HSBC PMI preview value dropped by 3.4 percentage points to 48, indicating that the company's production plan is still in the contraction stage. There are also some rumors that some companies have been forced to shut down production due to tight funds.

Third, environmental protection pressure has forced some enterprises to shrink their output. Recently, the Ministry of Environmental Protection and other relevant national departments and local governments have taken active measures to increase environmental protection supervision. The production of some steel mills has begun to be affected. For example, some steel mills in Linyi, Shandong have been forced to temporarily stop production. Rectification; some steel plants in Hebei will stop production during the day and at night; in addition, the Pancheng Steel smelting area will be shut down for environmental protection, and so on. With the further implementation of new environmental protection policies and regulations, there may be more companies that actively or passively shrink their output.

It can be seen that the enthusiasm of iron and steel enterprises in production in April was still suppressed to a certain extent, and the increase in output may be limited. If environmental protection enforcement is strengthened, the output of the entire industry will not be ruled out. In April, the important time window for seasonal demand switching, in the early macro policy stimulus, including a series of measures such as increasing liquidity release and investment approval, the release of demand for construction steel is a relatively certain and high probability event. On the whole, the supply-demand relationship in the steel market in April is expected to improve further, which will help reduce the upward pressure on steel prices.

(Source: China Business Intelligence Network)