Editor's Note: The first stage of Sino-US trade negotiations has yielded positive results. Will it become a "sharp weapon" in the fourth quarter market?

Jia Haoming: Affected by favorable trade friction but weaker market expectations, the impact on China's exports of mechanical and electrical products to the United States is not small, which has suppressed the demand for plates.  From the fundamental point of view, the stock of hot-rolled and medium-thick plate mills is higher than that of the same period last year, and the stock of plates has a slight advantage over the stock of threads, resulting in a pattern of "long weak plates and strong plates". At present, the contradiction between supply and demand is still accumulating, but after continuous downward adjustment, the momentum of price drop is exhausted.

Xiao Bian: What do you think of the demand for steel for infrastructure and real estate in the fourth quarter?

Jia Haoming: On the real estate side, I saw some bad news. The area of land sold has decreased. The state is still regulating the real estate market. However, it will take a long time for the policy to be transmitted to the downstream demand. In addition, there is an imbalance between the north and the south in the domestic real estate market. The construction in the north has not increased or even decreased, while the growth in the south is relatively fast.  Winter is not suitable for construction sites only in the north, the south is not affected by this phenomenon, so on the whole, the demand for 10-12 real estate steel is difficult to decline rapidly.

In terms of infrastructure construction, relevant departments have mentioned many times in the past month or two that infrastructure construction should be accelerated to make up for the shortage. However, the latest statistics from the Bureau of Statistics show that from January to August 2018, the national investment in fixed assets (excluding farmers) totaled 415.158 billion yuan, up 5.3% from the same period of last year. The growth rate dropped by 0.2 percentage point from January to July, and the decrease was narrower than the 0.5 percentage point from January to July.  This also means that it will take some time for the policy to emerge. I don't think the overall consumption trend will be good in the future.  However, judging from the obvious seasonal characteristics of steel demand, the consumption of construction steel and other varieties in October and November will be relatively better than that in August and September.

Small editor: recently, the state funds support, terminal funds have improved?  What is the current mentality of traders?

Jia Haoming: At the current high price level, traders have limited capital capacity, and most of them can stay in this market are high-quality and stable enterprises.  These enterprises are not willing to bet on the market regardless of the increase in bank credit or acceptance.

The cash flow of production enterprises is good, and steel mills can maintain a high profit pattern through price support.  There are more or less some funding problems in the downstream area. The main problem is not the cost of materials, but the occupation of land and other capital costs. However, seasonal construction tasks will be guaranteed, so there will not be too much pressure on the capital.

Xiao Bian: At present, the steel market has a great controversy over the policy of limiting production for environmental protection in the heating season. It is expected that the limit of production will be weaker than last year. What do you think?

Jia Haoming: First of all, from the geographical area involved, this autumn and winter season covers a wide geographical area.  "2+26 city" is undoubtedly the main part of environmental protection and production restriction.  In addition, production will be limited in Fenwei Plain, involving overlapping cities, but some cities will be newly added, and the Yangtze River Delta may also have limited production expectations in the later period.

Secondly, in terms of duration and intensity, the production was limited on November 15 last year, and the peak shift production started on October 1 in some areas this year, an extra month and a half.  Of course, this year, the Ministry of Ecological Environment has explicitly banned "one size fits all" environmental protection, and has limited production in different proportions according to the situation of different enterprises.  Overall, the actual impact of this year's production restriction is not necessarily smaller than that of the same period last year.

At present, the stock of steel mills is low, especially rebar, which is significantly lower than that of the same period last year. The steel mills are not under much pressure, and the settlement price for ten days is not expected to be greatly adjusted.

Xiao Bian: We saw this week that the increase in steel stock in the society and in steel mills is not obvious. So what about the later inventory?

Jia Haoming: As in previous years, the phenomenon of accumulation of reserves will definitely occur near the end of the year. According to statistics, the thread output this week was 3.578 million tons, down 84,900 tons.  Factory depot 2.508 million, up 38,700 tons;  The social stock rose by 62,800 tons to 2,959,300 tons, while the total stock rose by 101,500 tons.

With so many uncertain factors leading to pressure to hold heavy positions before the holiday, the market mentality is mostly profit-oriented, and short-term price correction is in line with expectations.

However, as mentioned earlier, the demand side is still facing the possibility of further contraction, so the inventory may rise further in the later period, the speed of inventory increase and the strength of terminal demand deserve high attention.

Xiao Bian: So what do you think of the post-holiday steel market?

Jia Ming: The continued accumulation of market stocks after the holiday is a high probability event. In addition, the downstream construction in the later period will affect the stagnation of demand, and the futures price target is closely related to the spot price. With the delivery of futures 01, the market price performance is not expected to be very good in the near future.