**Abstract**: The relaxation of import qualifications has disrupted the monopoly held by iron ore traders. Meanwhile, China Railway Corporation has initiated freight reforms, leading to a push in railway freight pricing. These reforms are expected to lower overall logistics costs for society and promote the development of the entire logistics industry. However, the steel industry is facing a general downturn, with the Caofeidian base project, after eight years, now facing losses exceeding 10 billion yuan. Similarly, the Baosteel Zhanjiang project has been delayed for over a year, raising concerns it may become the "Caofeidian of the second kind."
**Core Tip**: The relaxation of import qualifications has weakened the dominance of iron ore traders, while the reform of railway freight by China Railway Corporation aims to drive price adjustments. These changes are expected to reduce total logistics costs and boost the logistics sector. However, the steel industry is struggling, with Caofeidian’s massive losses and Baosteel Zhanjiang's prolonged delays raising questions about future projects.
**Hot Spot Reading**
◠**Baosteel Zhanjiang Project Delayed for a Year – Fear of Becoming the "Caofeidian of the Second Kind"**
The Baosteel Zhanjiang project, which was highly anticipated, received approval from the National Development and Reform Commission in May 2012 and began construction in May 2012. However, media reports indicated that work had stalled. In May 2015, the company announced the start of main construction, but upon visiting the site, no significant progress was observed. Industry experts suggest that domestic steel overcapacity and difficult operating conditions have made large-scale investments risky. Given the losses incurred by the Shougang Caofeidian project, Baosteel is cautiously managing the project’s pace to avoid repeating past mistakes.
**Interpretation**: The Caofeidian project, once a major initiative, was intended to be a new coastal steel base following Shougang’s relocation. It aimed to produce high-end steel products during a period of rising demand. However, due to deteriorating market conditions and weak demand, the project has struggled. Additionally, heavy debt burdens have led to losses exceeding 10 billion yuan. As Baosteel focuses on sheet metal production, declining demand from downstream industries like automotive and machinery has forced the company to slow down its investment in the Zhanjiang project. Construction progress has slowed significantly, reflecting the broader challenges of overcapacity and poor performance in the steel sector.
**China’s Economy Continues to Face Challenges, With Little Hope for Policy Relief**
Despite growing calls for interest rate cuts, the Chinese economy continues to struggle. The PPI fell more than expected, and credit data missed market expectations. Data from May confirmed that the second quarter performed worse than the first, with increasing risks of economic decline. Although there is pressure for policy easing, it is unlikely that China will adopt such measures in the near term. The government has emphasized quality growth over speed, and short-term relief is not expected.
**Interpretation**: In May, the PPI dropped by 2.9% year-on-year, marking the 15th consecutive month of decline. This sharp drop during peak industrial activity indicates weak demand at the industrial level. While interest rate cuts could help attract hot money, they might also fuel inflation and real estate prices, worsening liquidity issues. The leadership has repeatedly stressed the importance of sustainable growth, making policy easing unlikely in the short term.
**Related News**
â— **Iron Ore Import Qualifications Removed**
Starting July 1st, any company with import/export rights can apply for an automatic license for iron ore, without additional review. This marks the end of the iron ore import qualification system that began in 2005, aiming to reduce market distortions and improve transparency.
◠**China’s New Ship Orders Reach Bottom in May**
China’s new ship orders continued their upward trend, reaching the highest level globally in May. Analysts believe this is a good time to secure bargains as global ship prices hit a low. From January to May, global new orders totaled 40.67 million DWT, up 70% year-on-year. China’s shipyards secured 4.04 million DWT in May, surpassing South Korea and Japan.
â— **Railway Freight Reform Enters Deep Water**
China Railway Corporation has launched a major market-oriented reform in freight transport, signaling a shift toward a more competitive logistics model. The reform includes simplified procedures, full-service logistics, and a “one-price†charge system. It is expected to reduce logistics costs and stimulate the broader logistics industry.
**Market Analysis**
On May 14, U.S. indices fell, with the Dow Jones down 0.7%, the Nasdaq down 0.63%, and the S&P 500 down 0.59%. Gold and crude oil prices rose, while the U.S. dollar index declined. Copper prices on the London Metal Exchange also increased slightly.
**Weekly Steel Market Summary**
Last week, steel inventory declined slightly, with reduced stock levels across various product types. Despite some improvements, demand remains weak, and inventory reductions have narrowed. The steel market is expected to remain stable but weak this week.
**Steel Market News**
â— **Iron Ore**: Prices remained stable, with slight fluctuations in port transactions. Buyers and sellers remained cautious, and supply constraints limited downward pressure.
â— **Coke**: Prices continued to fall, with weak demand and pessimistic market sentiment.
â— **Steel Billet**: Prices rose slightly, with improved shipments and better market confidence.
â— **Rebar and Sheet Steel**: Prices were stable, with limited movement in key markets like Beijing, Shanghai, and Guangzhou.
**Today’s Forecast**
â— **Building Materials**: Prices remained flat or slightly higher, with modest improvements in market sentiment.
â— **Sheet Steel**: Prices stayed steady, with little change in trading volumes.
Overall, the steel market remains cautious, with ongoing challenges in demand and supply chain dynamics. Investors and traders are closely monitoring developments for signs of recovery.
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