In 2019, the overall Chinese steel industry showed a trend of "rising first and falling later", and the price in the first half of the year was significantly higher than that in the second half of the year, which reached a new high in July. The rally in the first half of the year was mainly due to the surge in raw iron ore prices, driving up prices in the downstream market. The weakness of the second half of the downward market, mainly due to the end of the market demand less than expected, and the overall manufacturing economic environment is weak, the steel industry brought to the downturn. According to SunSirs data, the steel index was 942 points on December 30, down 11.55% from the cycle high of 1065 points (2017-12-05), and up 91.08% from the low of 493 points on December 20, 2015. (the cycle refers to 2011-12-01 till now), the annual increase of 1.95%, the highest to 998 points, and the maximum amplitude of 9.07%.

Raw Material Aspect：

In 2019, supply and demand are in tight balance, and the price level will move up steadily. In 2019, the periodic mismatch between supply and demand in the iron ore market led to a decline in the price surge, and the overall trend was "first up, then down, with wide fluctuations". The highest price of spot PB powder in Australia this year was $131.90 /wet ton, the highest since 2014. The main reason for the price volatility is the dam-break disaster in vale, Brazil, which has led to the imbalance between global supply and demand and skyrocketing prices. But as ore supplies gradually recovered, import prices started to stabilize in the fourth quarter, bringing supply and demand back into tight balance.

In 2020, the supply will increase and the price level may move down. In 2020, some of vale's mines resumed production and increased production of the S11D project, which may make up for the previous dam break. Australia will also resume production after the impact of the hurricane. In addition, Rio Tinto, BHP, FMG and mount Roy have production expansion plans. As a result, global ore supplies are expected to continue to increase in the future.

Demand Aspect：

In 2019, demand was less than expected and the growth rate of the industry slowed. Infrastructure: from January to November, China's infrastructure investment increased by 4% year on year, 0.3 percentage point higher than the same period last year. Infrastructure investment growth remains historically low. Real estate: from January to November, investment in real estate development increased by 10.2% year on year, 0.5 percentage points higher than the same period last year; The floor space of commercial housing sales rose 0.2 % year on year, 1.2 percentage points lower than a year earlier. In 2019, real estate development investment grew rapidly, while commercial housing sales grew at a low speed. In addition, due to the influence of housing used for living but not used for selling  policy and the ebb tide of shantytowns, the real estate sales boom declined, and the temperature drop in third-tier and fourth-tier cities was relatively obvious. Manufacturing: from January to November, investment in manufacturing increased by 2.5% year on year, 7 percentage points lower than the same period last year. In the same period, China's manufacturing added value increased 5.9 % year on year, 0.7 percentage points lower than the same period last year. From January to October, manufacturing profits totaled 592.99 billion dollar, down 4.9 % year-on-year. It shows that the growth of manufacturing investment is sluggish, mainly because of the poor corporate performance, reducing enterprises' enthusiasm for investment. In addition, in 2019, enterprises are still in the "destocking" cycle, with weak supply and demand, low prices and difficult benefits.

The economy should grow steadily in 2020, inventories should shrink and demand should hold up. China's economic growth is expected to remain around 6% in 2020. The proactive fiscal policy needs to improve the quality and efficiency of the fiscal deficit ratio, and the growth rate of infrastructure investment is expected to pick up. The real estate market adheres to the policy of "no housing speculation" and "policies based on the city". Sales pressure in third-tier and fourth-tier cities is relatively high, the real estate cycle is still on the downward track, and the growth rate of real estate investment may decline. The structure of the manufacturing sector has been further improved, and the destocking effect in some middle and downstream industries has been significant. It is expected that the "de-stocking" will be replaced by “replenishment", and the terminal downward trend may slow down.

To sum up, the overall raw material cost of the domestic steel industry should fall in 2020, leading to the weakening of the cost support of steel, which is good for steel prices. The overall demand side of the steel industry may improve, with the real estate market still in the doldrums, but the demand for infrastructure may increase and the "replenishment" demand cycle of the manufacturing sector starting to take off. Steel prices are expected to rise. On the other hand, there is still no significant new capacity of domestic steel mills in 2019, most of which are capacity replacement and elimination. Therefore, it is roughly estimated that this part of capacity will produce output in the second half of 2020, so crude steel output will continue to increase slowly. Therefore, in 2020, the domestic steel industry as a whole may present a trend of "first down, then up, wide range of volatility", "before low and then high, narrow range volatility", the highest or break 1000 points.

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