The Fluctuations Of Steel Price Is Related To The Economic Development Cycle

The development and changes of things are inseparable from the cycle. Under the condition of market economy, the law of economic development is of great significance to study the changes of the market and the future development direction, as is the case in the iron and steel industry. In recent years, China's iron and steel industry has experienced the stages of start-up, scale development and extensive development. Since the 13th five-year plan, the state has put forward the supply side structural reform. The iron and steel industry has ended the extensive development mode and began to change to high-quality development. After gradually eliminating backward production capacity, the development of the iron and steel industry has ushered in the dividends of reform and counter cyclical adjustment, and the industrial benefits have gradually improved. The reform has achieved remarkable results. Now entering the first year of the 14th five-year plan, the state has put forward higher requirements for the development of the iron and steel industry. The goals of "carbon peak" and "carbon neutralization" have not only ushered in major development opportunities, but also faced many challenges.

1. What is an economic cycle?

Economic cycle refers to the regular expansion and contraction of economic activities along the overall trend of economic development. It is generally divided into four stages: prosperity, recession, depression and recovery. It graphically shows recession, trough, expansion and peak. Under the condition of market economy, the cyclical changes of economic situation always affect the rise and fall of all walks of life.

The operation of an industry is affected not only by its internal environment, but also by its external macroeconomic environment and market environment. For an industry or an enterprise, the external environment is difficult to change, but we can actively adapt to the changes of the external environment by optimizing the internal environment, make full use of the external environment, follow the trend, better respond to challenges and usher in opportunities in the development process.

When it comes to the economic cycle, we have to mention investment and consumption. The change between investment and consumption in the iron and steel industry is the main reason for the change of steel price. Through the economic cycle analysis, we can see that the recovery stage of the economic cycle is when consumption increases and investment has not yet started; Consumption continues to increase and investment also increases rapidly, which is the upsurge stage of the economic cycle; The decline of consumption and the increase of investment inertia are the recession stage of the economic cycle; Both consumption and investment fell into the depression stage of the economic cycle.

2. Evolution of iron and steel industry development in economic cycle

Following the law of economic cycle change can be an important magic weapon for medium and long-term market investment. As a basic industrial product, steel, economic cycle is the most important factor affecting the change of steel price. The changes in the steel market in the past 20 years can be roughly divided into two cycles. The first cycle is before 2002, the prosperity stage is 2003-2008, the recession stage is 2009-2012 and the depression stage is 2013-2015; The recovery stage of the second cycle is from 2016 to 2019, and the second cycle is from 2020 to now, which is a prosperity stage.

The corresponding change of price volume relationship is as follows: in the recovery stage before 2002, the crude steel output increased slightly and the steel price fluctuated and rose; During the boom period from 2003 to 2008, the output of crude steel increased geometrically and the price of steel doubled; In the recession stage from 2009 to 2012, crude steel production continued to grow and the price fluctuated at a high level; In the recession stage of 2012-2015, crude steel production peaked and fell, and prices continued to decline. Since 2016, after the supply side reform of China’s iron and steel industry was proposed, the state has continuously issued counter cyclical adjustment policies, accelerated the recovery of the iron and steel industry, realized the simultaneous increase of price and volume, and now entered the stage of green and high-quality development.

Following the pace of China's economic growth, China's iron and steel industry has experienced the initial development stage, scale development stage and extensive development stage. Now it begins to enter the green and high-quality development stage. At present, China's economic growth pursues quality rather than speed, and puts forward more supply side structural reform oriented by industrial upgrading and demand side structural reform oriented by consumption upgrading.

3. Iron and steel industry under the new situation of green development

Facing the complex economic environment at home and abroad, China continues to deepen reform, strengthen counter cyclical regulation and deal with the downward pressure of the economy. Since the 14th five-year plan, China has also put forward higher requirements for the development of the iron and steel industry. At this stage, under the new situation, China has put forward the grand goals of "reaching the peak of carbon" by 2030 and "carbon neutralization" by 2060, which also indicates that China's iron and steel industry will be guided by green environmental protection in the future.

According to relevant data, in 2019, the energy consumption of the global steel industry accounted for about 8% of the final energy consumption, resulting in direct carbon dioxide emissions of 2.6gt, accounting for about 7% of the direct carbon emissions of energy; In China, the steel industry is the manufacturing industry with the largest total energy consumption. From this point of view, the iron and steel industry have a long way to go in energy conservation and emission reduction.

Short comments: The boom period of both price and volume will continue for several years, and the historical low of steel price in 2016 will be difficult to occur in the future. At the same time, the future profitability of steel production enterprises will probably maintain a high level for a long time.