In March, the construction materials market continued to face a decline, though the drop was narrower compared to February. Notably, the price of rebar in Central China saw a slight increase. High inventory levels, slow demand recovery, and financial pressures at the end of the quarter combined to continue constraining steel prices. Merchant shipments remained dominant in the market. The number of steel mills undergoing maintenance increased, and crude steel production stopped fluctuating significantly. Meanwhile, seasonal demand in the steel market began to pick up. Intermediate dealers and end-users accelerated their purchasing pace, leading to a five-week consecutive reduction in social inventories. Sales pressure eased, and with the end of the quarter, expectations for government stimulus policies in Q2 grew stronger, providing some support to steel prices from the bottom.
For downstream steel companies, it is recommended to purchase on demand. Traders should replenish stock based on available resources and sell during price rallies, focusing on wet storage operations. Intermediate traders are advised to operate in short cycles.
**Domestic Market Dynamics**
1. **Market Trends**: This month, domestic building materials remained weak, but the decline was less severe than in February. In Central China, rebar prices rose slightly. Slow downstream activity and the need to digest previous high inventory levels continued to restrict steel prices. At the end of the quarter, financial pressure was higher than usual, and credit issues within the steel industry added to the challenges. As a result, most businesses operated cautiously, keeping the market in a slow downward trend. More steel mills underwent maintenance, leading to a decline in crude steel production. With rising temperatures, terminal demand improved in the second half of the month, gradually easing market fundamentals. Some first-line resources appeared in certain markets. Additionally, poor economic data in Q1 increased market expectations for stronger government stimulus policies in Q2, boosting sentiment toward the end of the month and causing some cities to see price increases.
2. **Cost Analysis**: Profit margins showed a slight improvement this month. According to cost models, as of March 31, small and medium-sized steel enterprises producing 20mm three-tier rebar had a profit margin of -471 yuan/ton, an improvement of 12 yuan/ton from the end of last month. For 6.5mm high-line, the profit margin was -355 yuan/ton, up 34 yuan/ton from the previous month. Since mid-December, steel prices have fallen sharply for three consecutive months, reaching historically low levels with limited room for further declines. With macroeconomic policy support expected to rise, and traditional consumption season approaching, supply-demand balance may improve. In April, steel prices could see some rebound. Raw material demand is expected to gradually recover, reducing stock market pressure. In the short term, many steel mills and traders will need to restock, increasing turnover in the raw material market and strengthening its performance. Overall, the Building Materials Research Group expects a marginal improvement in the profitability of small and medium-sized steel enterprises this month.
3. **Inventory Changes**: Domestic building material inventory fell sharply in March. As of February 28, total inventory stood at about 12.1085 million tons, a 8.49% decrease from the previous month, a 52.24% increase from the same period last year, and a 12.52% year-on-year decrease. Thread inventory was approximately 9,574,100 tons, down 7.75% from last month, up 51.04% from the previous month, and down 10.63% year-on-year. Wire rod inventory was around 2,534,400 tons, a 11.19% decrease from the previous month, up 56.78% from the previous month, and down 19% year-on-year. According to the latest data from the China Steel Association, crude steel output in mid-March reached 16.9172 million tons, with an average daily output of 1,691.7 thousand tons, an increase of 31,200 tons or 1.88%. Although destocking was effective, crude steel production data was not very optimistic. Considering the start of demand, inventory continued to be digested. Overall, it is expected that inventory will continue to fall in March, with a slower decline than the same period last year.
4. **Import and Export Analysis**
(1) **Import Analysis**: In February 2014, steel rod imports continued to decline, with wire rod imports rising by 57.38% year-on-year and 42.48% month-on-month. Rebar imports were approximately 0.26 million tons, down 4.8% year-on-year and 23.91% month-on-month. Wire coil imports totaled about 37,000 tons, down 50.51% year-on-year and up 41.48% month-on-month. In March, the domestic building materials market was in a downturn, and the "golden March" did not materialize. Weak economic data, slow downstream demand, and excess domestic supply suppressed steel price increases. Due to insufficient domestic demand and low prices, steel mill imports were suppressed. However, with the market recovery accelerating, import volumes are expected to rise slightly in March.
(2) **Export Analysis**: In February 2014, China's rebar exports declined year-on-year, while wire rod exports increased both year-on-year and month-on-month. Rebar exports were 6,200 tons, down 74.29% year-on-year and up 80% month-on-month. Wire rod exports were 582,700 tons, up 18.77% and 867.22% respectively. Total wire screw exports were about 587,900 tons, up 14.43% and 824.86% compared to the previous month. In March, the international steel market operated steadily. European demand picked up, and steel mills raised prices, expecting an increase in market prices. In the U.S., demand improved, and no preferential purchases were made by downstream buyers, leading to price increases. Despite China's competitive steel prices, Europe and the U.S. have seen growing demand, making export conditions favorable. However, anti-dumping investigations in the U.S. on Chinese wire rod products have compressed export volumes, so steel exports are unlikely to rise significantly. It is expected that exports will increase slightly in March.
5. **Downstream Demand Analysis**
(1) **Infrastructure Construction**: According to the Ministry of Transport and the Bureau of Statistics, transportation fixed asset investment in February increased by -1.51% year-on-year, but rose 19.24% year-on-year. Highway, inland waterway, and coastal construction investments increased by 30.29%, -24.57%, and -54.52%, respectively. Urban fixed asset investment rose 17.9% year-on-year, and total construction project investment increased by 16.8% year-on-year. New project investment plans grew by 14.7%, and investment funds increased by 14.6%. While growth in investment and capital inflow slowed compared to the same period last year, new project investment growth accelerated. This year, the state will strengthen the construction of comprehensive transportation networks, including railways and highways, and improve rural infrastructure and farmland water conservancy. It is expected that infrastructure projects such as water conservancy, highways, and railways will accelerate in the short term, leading to a rebound in steel consumption for spirals and pipe sections, albeit weakly.
(2) **Real Estate**: According to the National Bureau of Statistics, real estate development investment reached 795.6 billion yuan from January to February 2014, a nominal increase of 19.3% year-on-year, with a growth rate 0.5 percentage points lower than the previous year. Housing construction area was 529,593 square meters, up 16.3% year-on-year, with a growth rate 0.2 percentage points higher than last year. New housing starts decreased by 27.4%, and completed housing area dropped by 8.2%. Land purchase area for real estate developers increased by 6.5% year-on-year, while land transaction prices rose 8.9%. Commercial housing sales area decreased by 0.1% year-on-year. The real estate market showed a mixed trend in the first two months. A decline in commercial housing sales and tighter funding affected housing companies' enthusiasm, leading to a significant drop in new housing starts. However, under tighter controls and expectations of weakening housing prices, companies accelerated construction, maintaining acceptable conditions. Urbanization and other potential factors became more visible, driving strong demand in hot cities and fueling a heated land market. With current policies still in place and strict controls in major cities, it is difficult to relax. In March, property transactions continued to decline, and housing company capital remained weak. In the coming period, housing prices are expected to weaken, and commercial housing demand may decrease. However, some companies will accelerate promotions. It is expected that the real estate market will slowly recover from seasonal weakness, and related building material demand will gradually improve.
6. **Steel Price Adjustment Analysis**: In March, steel mill policies were adjusted downward. Under the macro-environment of sharp drops in steel prices and related commodities, and with no benefits for any party, market prices continued to fall. Steel mill prices dropped, and the difference in amplitude between different types of steel mills was quite large. Given that current social stocks remain high and demand is unlikely to improve in the short term, it is expected that steel mill policies will become stronger before next month.
**Second, Market Analysis**
1. **Technical Analysis**: As of March 31, the main screw 1410 contract opened at 3413, reached a high of 3438, a low of 3141, and closed at 3328, a drop of 84 points from the previous month, a decrease of 2.46%. The trading volume was 48,184,696 contracts, with 1,885,346 lots remaining at the end of the month.
From a technical analysis perspective, the May contract's 10-month moving average formed a dead cross, and the weekly K-line oscillated at a low level, stabilized, and recovered. The KDJ indicator was in a low range, while the MACD indicator was operating in a Hongzhu interval. From the Japanese K-line perspective, the K-line rebounded from a low level, with the KDJ indicator diverging upwards and the MACD Hongzhu expanding.
2. **Outlook for Next Month**: It is expected that the 1410 contract will consolidate in a narrower range early in the month, between 3320 and 3370, with a slight correction later. Bulls should participate properly in the early stage and wait for better opportunities. Long and short positions should be controlled within 10%, and specific recommendations for daily futures operations will be provided.
**Third, Trend Prediction for Next Month**
Based on the impact of building materials market trends, the key factors for long and short odds are roughly equal: real estate financing remains difficult, and even if seasonal demand recovers, its intensity will only bring cautious optimism. Mid-March steel mill inventory continued to rise, forcing factory price adjustments to be narrow, with limited impact on the market. Raw material prices are expected to remain weak, with poor cost support. However, sluggish first-quarter economic data may prompt macro-level steady growth policies to accelerate, supporting Zhengang City demand and business confidence. Building materials and social inventories have been falling for five consecutive weeks, with current levels lower than previous years, reducing sales pressure. Therefore, the building materials research group expects a limited upward shock in the market next month.
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