In the first half of 2014 domestic macro environment deteriorating, the real economy to continue capacity, market credit risk, liquidity directional loose clear, quantitative easing out formally, the dollar is expected to commodity markets under pressure, in iron and steel enterprise, industry structure adjustment; In the second half of the domestic hong kong-listed influenced by multiple factors, the APEC meeting their production and infrastructure projects intensive solution, the central bank to cut interest rates on the spot market is relatively limited, the influence of composite index in 2014 shocks all the way down, at the end of close to 113.6, down 14.9% year-on-year.
A down the steps, economic growth, investment growth downward
In November 2014, fixed asset investment growth 13.36%, 0.56% lower than in October. M1 growth rate of 3.17%, 0.3% lower than in October; M2 growth rate of 12.3%, decreased by 0.3% in October; M1 and M2 growth scissors for – 9.14%, decreased by 0.26% in October; New loans of 852.7 billion yuan, 36.5% year-on-year growth.
In 2015, domestic economic growth will decline to 7% level. China’s economy enters the new normal, are profound structural adjustment. Slower growth slowing population growth and aging makes the labor force, labor costs rise, demographic dividend. Population aging speed, resulting in a decline in saving trend, means that a decline in investment growth trend. Labor and capital growth by two factors, and the productivity of labor in the process of economic transformation has not been significantly improved, and potential economic growth rate will inevitably fall.
In 2015, investment in fixed assets growth is expected to fall further to 14%. Manufacturing, real estate and infrastructure investment in fixed assets in accounted for 34%, 24% and 22% respectively, total of 80%. Manufacturing capacity to undertake, profit margins decline, rising debt pressure, industry to reduce excess production capacity is the structural adjustment of the purport. In 2015 manufacturing investment growth will continue to be low. Real estate has been in the midst of a big cycle turning point, policy fully relax can only solve the problem of inventory, for new construction and land purchase actual effectiveness is limited. In 2015 the real estate investment growth will fall to 5% level. Infrastructure investment as the stable economic growth, policy tool has the characteristics of counter-cyclical, infrastructure investment in 2015 will remain at 20% level.
In 2015 domestic liquidity will remain stable, but need to pay attention to defuse financial risks. U.S. quantitative easing officially ended, years raising interest rates. Dollar long-term appreciation trend is clear, flows into the dollar assets, commodity market pressure, emerging economies, goods country pressure build up enterprise foreign loan repayment burden. Domestic M2 growth stable, ample liquidity in the interbank market. M1 remained low, corporate sector funds nervous, debt levels rose, credit risks. Continuous social financing scale, off-balance-sheet financing compression. Easing of policy expectations increase, on the one hand, hedge the impact of quantitative easing exit, on the other hand, dissolve the financial risk of the corporate sector.
From the perspective of the macro economic comprehensive index of monitoring, in 2015 the market is still not optimistic. Experience shows that macro economic comprehensive index as a leading indicator for the basic direction of the market has a very good indicator of the. Overall shakeouts macroeconomic composite index in 2015, the possibility of being down the steps again, looking forward to the reform measures, “all the way along the” strategic planning, in the second half of the pay off, release the long-term growth.
Second, the iron ore supply continues to increase, the market competition
In November 2014, the domestic iron ore concentrate 706.6 yuan/ton, than in October, down 58.4 yuan/ton; Imported ore price $79.66 / ton, than in October fell $3.06 / ton; Than coke 942.5 yuan/ton, down 2.5 yuan/ton in October.
Supply of iron ore market boom continued in 2015, the market competition facing deteriorating even further. Iron ore market is expected to price at $70 – $90 / ton level. Demand slowdown in China’s case, there are two main factors need to pay attention to the iron ore market, one is with Rio tinto, BHP billiton, fortescue, vale as the core of the mainstream mining capacity continues to expand, seaborne iron ore market continues to grow; Second is the mainstream mining expansion at the same time, also in further cut costs, the high cost of mine pressure.
Since the fourth quarter of 2013, Rio tinto, BHP billiton, fortescue’s capacity expansion, or according to the schedule to finish ahead of time, basically vale schedule delays, but will accelerate expansion after 2015. Iron ore supply rate quickly, the market supply and demand balance reversal, prices dropped dramatically. 2013-2014, the world big four mainstream mining capacity increase of 200 million tons, 100 million tons in 2015 will further growth. Gindalbie, citic Pacific began to release the production, and low cost Roy Hill project after complete the financing plan is expected to begin in September 2015. Domestic crude steel production in 2015 is expected to reach 860 million tons, up 2% from 2014-3%. Growth in demand for iron ore 35 million tons, the market oversupply is inevitable.
Mainstream global iron ore mine is significantly lower than the cost of non-mainstream mines and domestic mines. In the first quarter of 2014 vale’s cash cost is $22.1 / wet tons; In 2015, Rio tinto, BHP billiton, fortescue’s cash is expected to cost $21.4, 21.4, 25.2 / wet tons, China port of delivery of the full cost of 44.3, 46.1, 63.0 dollars/ton. Domestic ore, on the other hand, the average grade of 30%, and even less than 20%, selecting the high cost, high taxes, fees and taxes accounts for 20-30% of sales revenue, including resource with an average of 14.5 yuan/ton, folding iron essence pink 45 yuan/ton, significantly higher than Brazil, Australia, etc. In 2015, the space of the mainstream domestic mining area and face further compression, due to reduction of 200 million tons in 2013. MPP will be squeezed out, but the domestic large state-owned mines will be able to continue as a going concern.
Three big cycle turning point, real estate industry, the auto industry to maintain low growth
1, the real estate industry
Housing starts in November 2014, covers an area of 170 million square meters, fell by 32.2%, than the collapse in October; Commercial housing sales area of 130 million square meters, fell by 11.1%, than the decline in October to expand. In November 2014, real estate development investment growth of 11.9%, commercial housing sales area of the total – 8.2%, the new construction area of the cumulative growth rate – 9.0%, area of cumulative growth rate of 8.1%, the completion of the construction area of cumulative growth rate of 10.1%, land acquisition area of cumulative growth rate to 14.5%. Sales area as a leading indicator, ahead of the new construction area of season 2, the new construction area and land area of basic synchronization, purchase and driven synchronous or slightly ahead of the investment, construction, completion area. In policy, driven by the fourth quarter of 2014 sales as expected periodically back up and then fell again, housing starts in November and land acquisition also fell again, show the trend of the real estate industry growth is slowing is irreversible.
In 2015 the real estate industry downturn will continue. Real estate industry account for around a quarter of the total steel demand, real estate and infrastructure construction of categories of steel demand accounted for more than half of the total. Golden decade of China’s economic growth, is the main internal factors high-speed growth of the real estate and urbanization, its striking feature is its self inspired absorbed by positive cycle of the huge amount of liquidity, has driven the rapid development of steel industry. However, the real estate growth face end, accelerated aging of population, urbanization is close to middle, land finance transformation, has brought the big cycle turning point. 2015 real estate development investment growth is expected to maintain at 5%, sales area and new construction area is close to zero growth.
In November 2014 domestic infrastructure investment growth 14.86%, 9.33% lower than in October. Among them, power, transportation, water conservancy investment grew by 13.99%, 7.64% and 23.51%, respectively, 4.19, 13.78% and 13.78% lower than in October.
Infrastructure growth in 2015 will remain at 20% level. Is the main direction of high-speed railway construction, water conservancy construction and environmental governance. However, due to local government debt problem is always there, what was involved in the infrastructure system environment is not perfect, the growth of the infrastructure space has revised down.
From the point of leading indicators, PMI index 50.1% in December 2014, 0.2% lower than last month. The new orders index was 50.4%, than fell 0.5% last month. New export orders index was 49.1%, more than 0.7% last month. Production index is 52.2%, than fell 0.3% last month. Raw materials inventory index is 47.5%, than fell 0.2% last month. Supplier delivery time index was 49.9%, and fell 0.4% last month. Purchase quantity index is 50.1%, than fell 0.4% last month. Purchase price index for 43.2%, 1.5% lower than last month. Import index was 47.8%, up 0.5% last month. Finished goods inventory index was 47.8%, 0.6% higher than last month.
From the point of a lagging indicator, output of 2.327 million cars in November 2014, year-on-year growth of 2.6%. The yield of total 4.834 million tons, 19.5% year-on-year growth. Refrigerator production is 6.935 million sets, year-on-year growth – 6.76%; 6.768 million sets of washing machine production, year-on-year growth to 6.43%. Auto production in single digit growth, shipbuilding, electrical appliances.
2015 years manufacturing overall growth space is limited, the car as a leading down significantly, its growth will remain in the single digits, its reason mainly lies in real estate sales downturn drag on automobile consumption, as well as the corporate sector funds nervous. The auto industry of steel demand accounts for 6-8% of the total steel demand, the highest proportion in the manufacturing industry. Since 2003, the automobile industry has experienced high growth, growth began to decline after 2011, the continued downturn in manufacturing, the auto industry to maintain a good growth, exceeding 20 million cars.
Fourth, the industry to leverage, had winter or face again
In four trillion stimulus in 2009, under the stimulus of the iron and steel industry is not only a surge in capacity, but also a significant expansion process of leverage. Generally as a financing tool steel, steel social inventory swelling, account for monthly steel apparent consumption ratio as high as 30% above. However, after the tide receded, demand growth slowing, industry overcapacity, the market price collapse, steel trade crisis, at the same time to capacity, shrinkage leverage more intense. Social inventory of monthly steel apparent consumption rate fell to record lows. In December 2014, according to statistics, the domestic social inventory, 8.7143 million tons of steel fell 29.7% year on year; With 782700 tons of wire, fell 31.16% year on year; Thread 3.307 million tons, fell 27.69% year on year; 2.2351 million tons of hot rolling, fell 37.52% year on year; 1.3338 million tons of cold rolled, fell 12.18% year on year; Medium plate 875100 tons, down 31.58% year-on-year.
Circulation of 2014 steel market prices all the way down, business reform, the lack of inventory motives. Steel market inventory cycle has been unable to stand, and only the seasonal cycle. In 2015 had winter or failed again, expected 2-3 months the peak level of social inventory of 13.5 million tons of steel.
Inversion in 2015, the domestic steel market is still not easy. Under the new normal of the Chinese economy, the population dividend end, saving a turning point, fixed asset investment growth downward, economic growth rate decline. Iron ore supply growth, further deterioration of market competition. Steel consumption into the plateau, weak growth in production and demand. Real estate cycle structural inflection point, the auto industry to maintain level of bits. The iron and steel industry to capacity, to leverage, social inventory cycle. Lange composite index are expected to be 105-125 interval level.