I. The primary control target shifts to ensuring market demand for steel structures

 

　　Since the second half of last year, the continued decline in various macroeconomic indicators has caused concern and worry among decision-making departments. Statistical data shows that GDP has shown a quarterly decline for over a year, with cumulative growth of 9.2% in 2011, a decrease of 1.2 percentage points year-on-year. Fixed asset investment and industrial added value have also experienced significant declines. The actual growth rate of fixed asset investment in 2011 (excluding the price increase factor of investment goods) was only 16.1%, far lower than the previous growth rate of over 20%; the industrial added value in December last year fell to 12.8%. Even the decline in price levels implies a cooling economy. The year-on-year growth rates of the PPI index in December and January were 1.7% and 0.7%, respectively, with steel prices falling. This "diving" decline in the producer price index also shows that the previous tightening measures were too strong, and overall demand is weak.

 

　　Of particular concern is the persistent trouble with the European debt crisis. If the worst-case scenario occurs, disorderly defaults by some countries could trigger a major shock to the global financial system, affecting the world's real economy and inevitably causing a major impact on China's exports. Even if this worst-case scenario is avoided, developed countries in Europe and America will cut spending to reduce deficits, which is not conducive to China's trade exports. Affected by this, China's export growth rate has rapidly narrowed since 2011, and even saw a negative growth of 0.5% in January of this year. If price increases are excluded, the export decline would be even greater. According to the HSBC China PMI index for February, export order data fell to an eight-month low, indicating that the outlook for exports this year is not optimistic.

 

　　Considering the above situation, in order to avoid the superposition of domestic contraction effects and external environmental deterioration, and the occurrence of a "hard landing" of the economy, the decision-making department decided to shift the primary control target to steady growth, while also paying attention to controlling price levels. Recently, a central meeting pointed out that this year, steady growth, price control, structural adjustment, improving people's livelihood, promoting reform, and promoting harmony should be better combined, thus putting steady growth in the first place among macroeconomic control objectives.

 

　　Under the guidance of the primary control objective of steady growth, some substantive easing measures will be successively introduced. Since December last year, the central bank has twice lowered the reserve requirement ratio, and several more reductions are expected in the future. If China's export slowdown exceeds expectations, it will stimulate domestic demand with greater force, including stimulating demand for first-time home buyers and improved housing, and a rate cut by financial institutions is not ruled out. In terms of stabilizing export demand, relevant departments are also studying and preparing to introduce policy measures, such as providing support in financial and tax policies, helping enterprises cope with trade friction, and improving export credit risk protection mechanisms.

 

　　All of these will be conducive to the recovery of steel demand and will prevent the worst-case scenario. It is estimated that the total demand for crude steel in 2012 (including direct exports) will reach or approach 700 million tons, an increase of more than 3% year-on-year.

 

　　II. Increased consumer demand drives stable production growth

 

　　According to statistical bulletin data, China's crude steel output in 2011 was 683 million tons, an increase of 8.9% year-on-year. It is estimated that the national crude steel output in 2012 will reach 700 million tons, with a year-on-year increase of no less than 5%.

 

　　At present, the biggest uncertainty hindering the stable growth of China's crude steel output is the sharp deterioration of the European debt crisis. If major economies in the world fail to respond appropriately and stand idly by, leading to hard debt defaults or disorderly debt defaults in countries such as Greece and Italy, it will inevitably lead to a more serious recession in the world economy. Affected by this, China's economy certainly cannot remain unaffected, and a "hard landing" is unavoidable, that is, the economic growth rate is below 7%. In this case, China's crude steel output is very likely to experience negative growth, with the annual crude steel output being below 680 million tons.

 

　　From the current perspective, the momentum of the further deterioration of the European debt crisis seems to have stopped, and the resulting panic atmosphere has subsided, and the market is regaining confidence. The main manifestations are: firstly, major economies in the world have reached a consensus and taken measures to avoid debt defaults in Greece, Italy and other countries. If things progress smoothly, the Eurozone will escape the prospect of collapse. Secondly, the US economy is starting to stabilize. According to relevant information, while the US unemployment rate is still at 8.3%, this is the lowest level since February 2009; the Dow Jones Industrial Average has been rising steadily this year, once surpassing its historical high of 13,000 points, just a step away. Thirdly, global manufacturing is generally recovering. This is the most important "dawn." According to a survey by authoritative institutions, the purchasing managers' index (PMI) for 30 countries worldwide was 51.2 in January this year, an increase of 1 point from December last year. Among the 30 countries, the growth rate of the US manufacturing industry has reached its highest value since June 2011; India's industrial sector growth has also reached its highest historical level; the German manufacturing industry index is 51; although the growth rate of China's official PMI index is not large, it has also rebounded to 50.5, and HSBC's latest China PMI index is still below 50, but the month-on-month trend is upward, which is much better than previous pessimistic predictions. As the most important area of consumption for construction steel structures, the early recovery of manufacturing undoubtedly indicates that the overall market trend is turning towards recovery.

 

　　Therefore, although the risk of a serious deterioration of the European debt crisis and a more serious global economic recession still exists, it is a low-probability event. The main theme of the world economy this year is continued recovery.

 

　　The basic trend of continued recovery of the world economy, coupled with the establishment and implementation of the primary control objective of steady growth by domestic decision-making institutions, determines the stable growth of China's steel demand and output, although its growth rate will continue to decline.

 

　　From 2005 to 2011, the average annual growth rate of China's crude steel output was 13.1% over seven years. If the economic situation in China in 2012 is better than expected, and the crude steel growth rate falls by only half of the average growth rate of the previous seven years, which is 2.4 percentage points lower than the 8.9% growth rate in 2011, reaching a growth rate of 6.5%, then the total crude steel output for the year will reach 728 million tons.

 

　　If China's crude steel output in 2012 does not reach 700 million tons, and the growth rate is only flat year-on-year or even negative, what would that mean? It would mean that China's steel and related industries are all falling into recession; it means a sharp decline in the industrial added value and GDP growth rate of China, that is, falling below 5%. This would be an unbearable sharp change.

 

　　If the national crude steel output in 2012 reaches 700 million tons or more, based on the calculation of 850 million tons of crude steel capacity in the same period, China's crude steel capacity utilization rate will be above 80%, or even reach 85%, which is considered a normal level internationally.