Analysis of the Impact of the Central No. 1 Document on Domestic Steel Demand

On February 1st, the 9th Central Document No. 1 of the new century was announced as scheduled. The Central No. 1 document put agricultural science and technology on a more prominent position, pointing out that agricultural science and technology are the basic support for ensuring national food security, and are breakthrough resources. The inevitable choice of environmental constraints is the determining force for accelerating modern agricultural construction. The document also mentioned the improvement of facilities and equipment conditions and continued consolidation of the material basis for agricultural development. Next, with the gradual implementation of the No. 1 document in various regions, a new round of investment in agricultural science and technology and agricultural infrastructure will start. This article will briefly analyze the impact of the introduction of the No. 1 document on future steel demand for your reference.

I. Impact of Construction of Farmland Water Conservancy Facilities on Steel Demand

Following the Central Document No. 1 in 2011 and the Central Water Conservancy Work Conference, we will strive to achieve a lag of tens of years in infrastructure and fundamentally reverse the apparent lag in water conservancy facilities and strive to achieve an annual average of 2 times higher than the average annual input for water conservancy in the next 10 years. Afterwards, this year's Central Document No. 1 once again stated that we must unremittingly strengthen the construction of farmland water conservancy facilities, and accelerate the advancement of land transfer proceeds for central and provincial-level co-ordination of farmland water conservancy construction funds. Therefore, with the arrival of spring, the construction of a new round of water conservancy investment will gradually start. In fact, the latest data released by the Ministry of Water Resources also highlights the strategic position of water conservancy construction in the coming period. In 2011, investment in domestic water conservancy construction was 334.3 billion yuan, a year-on-year increase of 44.1%.

Figure 1 National Investment in Water Conservancy Construction

Source: Ministry of Water Resources, MRI

The large-scale development of farmland water conservancy facilities will undoubtedly produce a large amount of steel demand. The construction of dams and aqueducts will require a large amount of construction steel such as rebars and wire rods; and accelerating the construction of water resources projects and striving to expand the effective irrigated area may require the construction of a large number of pipeline projects, which will drive the demand for the related supporting equipment for steel pipes and pipeline projects. increase. At the same time, water conservancy construction requires a large number of excavators, bulldozers and other mechanical equipment, which will indirectly drive the demand for steel used in the construction machinery industry. The demand for steel products such as profiles, hot-rolled sheet, cold-rolled sheet and medium-thickness steel sheet will then Increased.

In addition, this year's No. 1 document also mentions that it is necessary to speed up the reinforcement of the reservoirs of dangerous reservoirs, which will also benefit the future steel market. In fact, as early as February 22, 2011 at the Executive Meeting of the State Council, it was already determined that by the end of 2012, the elimination of 5,400 small reservoirs will be completed (average investment of 4.5 million yuan each, with a total investment of 24.4 billion yuan). By the end of 2013, it had completed the consolidation of 15,900 key small reservoirs (about 2.4 million yuan per investment, with a total investment of 38.138 billion yuan). If roughly 100-130 tons of steel are used for the reinforcement of each small reservoir, only one reinforcement of the reservoir in 2012 could drive the demand for about 500,000-700,000 tons of steel. At the same time, the construction of water conservancy facilities is closely related to hydropower generation, which will further stimulate the construction of small hydropower stations and rural power grids, which will increase the demand for related steel products.

Second, the impact of increased agricultural mechanization on steel demand

The No. 1 document in 2012 also emphasized the need to accelerate agricultural mechanization, continuously expand the service scope of agricultural machinery and improve the service level of farm machinery. In other words, there must be a significant increase in the number and technical level of agricultural machinery used. The previous "12th Five-Year Plan" of agricultural science and technology also proposed that the rate of agricultural mechanization during the "12th Five-Year Plan" period should be raised from 52.3% during the "Eleventh Five-Year Plan" period to 60%. At the same time, this year's document No. 1 proposes to play a leading role in the government's investment in agricultural science and technology, indicating that the strength of national agricultural machinery purchase subsidies will not be weakened in the future. For the whole year of 2011, the Central Government’s subsidy for agricultural machinery purchases reached 17.5 billion yuan, an increase of 2 billion yuan over 2010. It is expected that this amount may exceed 20 billion yuan in 2012 (13 billion yuan has been issued in advance, and the specific amount of subsidies is to be treated. Determined after March **). With the promotion of central government policies and increased subsidies for agricultural machinery, the agricultural machinery industry is expected to maintain stable growth in the next few years. According to statistics, from January to November 2011, the agricultural machinery industry completed a total industrial output value of 262.4 billion yuan, an increase of 34.43% year-on-year. According to the Agricultural Machinery Association, this amount may exceed RMB320 billion in 2012.

Figure 2 Central Government Agricultural Machinery Acquisition Subsidy Fund

Source: MRI based on public data

The increase in the degree of agricultural mechanization will inevitably drive the increase in the demand for steel for agricultural machinery. The steel used in agricultural machinery is mainly used for steel, sheet metal, and pipe materials, as well as bearing steel used in tractors and harvesters. With the continuous improvement of the technical level of agricultural machinery, the demand for high-strength medium-thick plates, wear-resistant medium-thick plates and high-strength thin plates with higher technical quality will also increase. At the same time, according to a rough estimate of 544 kilograms of steel consumed per 10,000 yuan worth of production, the steel consumption of the entire agricultural machinery industry in 2012 may reach 17.43 million tons.

Looking back to the steel market, the publication of this document No. 1 will bring a warm feeling to the chilly steel market. The author believes that with the gradual warming of the weather, the implementation of national infrastructure projects and the No. 1 document With the gradual implementation of various regions, the downstream demand of the iron and steel industry will gradually improve, and the steel price in the later period may play a certain support. However, in the short term, the impact of the No. 1 document on the steel market may be more reflected in the psychological level, and it has little effect on the overall trend of the steel market.