After more than two years of vigorous supply-side reform, the steel industry's prosperity has improved significantly. Looking ahead to 2018, we believe the supply-demand pattern of the steel industry may shift from tight balance to broad balance, and the industry fundamentals will remain stable, though marginal improvement factors may be weaker than this year. We mainly propose ten major predictions for the steel industry in 2018 from aspects such as industry policy, raw material prices, and product structure.
Prediction One: The marginal effect of capacity reduction will diminish. Considering the reality that the steel industry overfulfilled its capacity reduction tasks in 2016 and 2017, we expect that the progress and scale of capacity reduction tasks will decline in 2018, and the lifting effect of capacity reduction on the steel industry will diminish at the margin.
Prediction Two: Environmental regulation of the industry will become normalized. The current government has elevated ecological civilization construction to a national strategic height, and the 19th National Congress once again emphasized this concept. As a representative industry of high energy consumption and high emissions, the steel industry will face stricter environmental protection policies in the future. Production restrictions in the “2+26” cities during autumn and winter will become the main operational approach for medium- and long-term environmental governance, and the industry's environmental regulation will face a normalized situation.
Prediction Three: Steel demand will be difficult to grow. We believe that the macroeconomy will be generally stable in 2018, economic growth will maintain a trend of slowing down and stabilizing, and steel demand will lose the foundation for substantial growth; at the same time, the overall steel demand of major steel-consuming industries will also be in a stable state in the future, making it difficult for steel demand to grow.
Prediction Four: Steel prices will tend to be stable. We believe that the supply-demand pattern of steel in 2018 will shift from this year's tight balance to a basically balanced pattern. Therefore, steel prices will be generally stable, and the central price level of steel will fluctuate around the 2017 level, making it difficult to reproduce the scene of sharp steel price increases in 2017.
Prediction Five: The price gap between long products and flat products will narrow. With the gradual release of compliant electric furnace capacity, the supply of long products will increase, and the tight balance pattern of long products in 2017 will loosen to some extent, and long product prices may soften; while with the recovery of manufacturing profits, the steel demand of the manufacturing industry is expected to grow, flat product prices are expected to rise, and the price gap between long and flat products is expected to narrow.
Prediction Six: The weak pattern of iron ore prices will be difficult to change. The oversupply pattern of iron ore will be difficult to improve in 2018. Coupled with the persistently high iron ore inventory at ports, it is expected that the weak situation of iron ore prices will be difficult to change in 2018.
Prediction Seven: Steel exports are expected to rebound. The world economy will continue to show a moderate recovery trend in 2018, the “Belt and Road” initiative will be further advanced, domestic steel prices will tend to be stable, and the price gap between domestic and foreign markets will gradually be repaired, which is expected to stimulate a rebound in steel export volume.
Prediction Eight: Industry mergers and reorganizations will accelerate. The industry's “capacity reduction” has achieved phased results, and future capacity reduction tasks will rely more on mergers and reorganizations. In 2018, the government is expected to introduce incentive policies for mergers and reorganizations, and the industry's merger and reorganization work is expected to accelerate.
Prediction Nine: Steel demand for steel structures will grow. The construction of Xiongan New Area will be accelerated in 2018, which may play a benchmark demonstration role for the large-scale implementation and application of steel structures, accelerate the development of prefabricated buildings, and thereby drive the growth of steel demand for steel structures.
Prediction Ten: The pace of industry deleveraging will accelerate. “Three cuts, one reduction, one补” will remain the key work of the steel industry for the next three years. Given that the deleveraging effect of the steel industry this year was not prominent, under the support of national policies and the efforts of the whole industry, the pace of steel industry deleveraging is expected to accelerate in 2018.