The policy continued to be in a vacuum period in mid-to-early January, steel prices continued to fluctuate downward, dragging down market trading sentiment. Downstream demand was poor due to seasonal factors, construction at northern construction sites was blocked, and the southern market rushed to deliver orders, but the overall demand also showed a downward trend; in late January, the PBoC announced the news of an RRR cut. This is the first RRR cut in 2024. The rate cut is greater than market expectations. It may provide more long-term funds for the market, which will provide a certain financial basis for resolving real estate risks and have a positive impact on the market.
In February, the market will usher in the traditional Chinese New Year. Downstream companies will suspend work and take holidays one after another. Market demand will fall to a relative bottom. Most of the time for resumption of work will be after Feb 24th, and demand will gradually recover after the holiday.
1. Some companies have suspended production
As CNY approaches, downstream companies have begun taking holidays. According to SMM research, 31.9% of companies have stopped production. Companies taking holidays early are mostly due to weather and project issues, and 68.1% of companies have not yet taken holidays.
Manager Zhou of Hubei Tongxing Construction Engineering Co., Ltd. mentioned: The construction sites are now stopped and the employees have gone home for the holidays. The planned resumption time is after Feb 24th. The situation of surrounding projects is not good, and there are not that many bids. I think there will be a vacancy of projects for a period of time after the year. The policy has not yet revealed anything. We will look at the situation after the year. If there are infrastructure or other projects, we will consider taking them on.
Mr. Qin of Shanxi Sanjian Group mentioned: The workers had already gone on holiday in January, and there were weather factors and financial problems. At the end of the year, there was still a lot of funds that had not been recovered. There were no new projects this month. The main reason was the year-end liquidation. The expectations for the first quarter was not very good, mainly relying on government projects.
Manager Zheng of Zhejiang Jiaotong Supply Chain Management Co., Ltd. pointed out: There were no new construction projects in January, and the construction sites have been on holiday one after another. About half of them can be closed on January 28-29. After the year, there will be more projects, basically high-speed ones, followed by the elevated project, which will not resume work until after Feb 24th, and large-scale work will resume in March.
2. Enterprises have fewer deadlines than in previous years
At the beginning of the year, in order to promote the early delivery of projects, construction departments in various places will often rush to complete projects. According to SMM research, currently only 26.1% of companies rushed to meet deadlines, and 73.9% of companies are producing according to the normal schedule or take holidays ahead of schedule due to order conditions.
Mr. Zhao of Shanghai China Construction First Engineering Bureau Construction Development Co., Ltd. said: It is very busy at the end of the year. The southwest China is stepping up work this month to complete the project volume before the end of the year. There is no plan for the projects after the CNY, but the bidding is very active. It is estimated that there will be no shortage of projects.
3. Big difference in the new projects undertaken after the year
According to SMM research, 38.3% of companies have received new orders or won bids for new projects after the year, while 61.7% of companies have not yet received new orders and will continue old projects or be on hold after the year. The current project undertaking situation in the downstream steel industry has not improved significantly, and the overall situation is not very optimistic.
Mr. Lei from the South China Branch of China Construction Sixth Engineering Group Co., Ltd. said: The construction site has stopped and the workers have been on CNY holiday. Management will also be taking a holiday in early February. The projects currently under discussion have not yet been finalized due to payment reasons. It is expected that the company will have new projects after the year.
To sum up, the seasonal demand for steel weakened in January. Due to cold weather in many places, construction projects were suspended, and market demand was suppressed. At the same time, the CNY holiday is approaching, and demand from companies has gradually slowed down. For February, the weather disturbance will be weakened, but the CNY holiday will have a greater impact, and the overall market transaction activity will decline. It is expected that new order demand will be gradually released after the year, and the positive macroeconomic expectations in the later period will still be there. We are looking forward to the market situation after CNY.
