Changpeng Wan
When Stocks Skyrocket in Sixty Seconds
The Shanghai Composite hit fresh 2025 highs on July 4th amid volatile trading – but nothing signaled market frenzy more dramatically than Liugang Steel (柳钢股份) hitting the 10% upper price limit within 60 seconds of market open. Such vertical limit-ups remain rare phenomena where stocks essentially vaporize available sell orders, freezing prices at maximum daily gains within moments. Similar explosions occurred across power utilities as heatwaves blanketed China.
Key Takeaways
– Steel stocks rallied for 8 of 9 sessions amid policy-driven capacity reform
– Tangshan production cuts removing 30,000 tons daily sintered ore supply
– Power sector soared as temperatures broke 40°C nationwide
– Southern Regional Power Market launches record-breaking spot trading
– 80% of steel firms profitable in Q1 2025 vs 60% in 2024
Market Indicators Flash Green and Red
Today’s early session saw major indices diverging despite new yearly highs for the Shanghai Composite. The index climbed 0.2% as Shenzhen Component rose 0.1% and ChiNext gained 0.3%, while STAR 50 dipped 0.4% and Beijing Exchange 50 shed 0.2%. Decliners overwhelming advancers by 3:1 ratio showed underlying caution despite expanding volume.
Sector Winners and Losers
Steel (+1.8%), gaming (+2.3%), banking (+0.7%), and power (+1.9%) led gains, contrasting sharply with lagging aerospace (-1.5%), marine economy (-1.2%), textiles (-1.8%) and consumer goods (-0.9%). This divergence reveals how policy shifts create abrupt sector-wide momentum.
Steel’s Meteoric Vertical Limit-Up Run
Liugang Steel achieved its fourth consecutive daily limit-up today in mere minutes – a vertical limit-up showcasing extreme technical momentum. Shares now trade at three-year peaks alongside Shougang (首钢股份) and Linggang Steel (凌钢股份). The sector’s nine-day surge coincides with improved fundamentals.
Policy Reshapes Industry Landscape
The June Central Finance Commission meeting accelerated China’s “national unified market” initiative targeting disorderly competition. Steel became immediate focus with Tangshan announcing July 4-15 production curbs. Mysteel data indicates participating mills represent 60% of regional capacity:
– Current sintering utilization: 83% (270K tons/day)
– Project post-curb utilization: 70% (240K tons/day)
– Daily capacity loss: 30,000 tons
Profit Recovery Accelerates
Following years of capacity pruning, National Bureau of Statistics reports steel industry profits reached ¥316.9 billion Jan-May 2025 – exceeding ¥291.9 billion earned in entire 2024. Wind data shows profitability transformed:
– 2024 Profitable Steel Firms: 60%
– 2025 Q1 Profitable Steel Firms: 80%
“Policy tailwinds combined with supply discipline create ideal conditions,” noted CITIC Securities analyst Wei Jie (魏杰), “Infrastructure demand and property stimulus complete this virtuous cycle.”
Power Utilities Ignite Amid Scorching Heat
Electricity paralleled steel’s vertical limit-up frenzy: Huayin Power (华银电力), Shennan Electric (深南电A), and Jinfang Energy (金房能源) all hit ceiling prices within 10 minutes of trading. The sector index touched one-month highs as China started peak-summer electricity operations.
Grids Brace For Demand Tsunami
Central Meteorological Administration’s amber warnings forecast temperatures exceeding 40°C across eastern provinces. State Grid completed 140 peak-season projects by June 30th, adding critical transmission capacity. Their official statement emphasized: “These upgrades tackle regional overload risks while supporting economic development.”
Historic Market Reform Launches
The Southern Regional Power Market inauguration revolutionized pricing mechanisms across Guangdong, Guangxi, Yunnan, Guizhou, and Hainan. As the world’s largest unified spot electricity market:
– Transitioned from weekly/monthly to continuous daily trading
– Average volume: 380 million kWh/day
– Surpasses UK+France+Germany daily consumption combined
China Southern Power Grid CEO Meng Zhenping (孟振平) observed: “Real-time pricing better reflects scarcity during extreme weather events.”
Anatomy of Vertical Limit-Up Events
Vertical limit-ups occur exclusively during opening auctions or post-halting resumptions when buy orders catastrophically overwhelm liquidity. Three prerequisites:
1. Catalyst Event: Policy leaks/timing coinciding with market open
2. Concentrated Interest: Multiple brokerages simultaneously upgrading targets
3. Order Imbalance: Rarefied sell-side depth magnifying impact
Case Study: Liugang Steel Mechanics
At 9:30:03, Liugang opened at ¥5.05 (+4%). By 9:30:55:
– Buy orders: 220,000 lots accumulating
– Ask liquidity: 18,000 lots disappearing
– Price surged ¥0.52 triggering circuit breaker
Such liquidity vacuums demonstrate how derivative volatility spawns “gamma squeeze” conditions.
Sustainability Concerns Emerge
CITIC Securites cautioned: “Heat-driven power demand creates temporary windfalls, but coal remains wildcard.” LevLin Capital economist Zhang Feng (张峰) highlighted steel’s cyclical risks: “Production discipline requires constant enforcement – single-month OPEX improvements hardly ensure structural renaissance.”
Technical Warning Signs
Traders eye key reversal risks:
– Steel sector RSI readings now 82 (overbought)
– Power futures backwardation steepening
– Steel inventory replenishment slowing
Strategic Pathways Forward
As heatwaves intensify through July, power operators appear positioned for cash-flow bonanza. Steel’s momentum could sustain through Q3 on enforcement of Tangshan-style controls. For investors navigating whipsaw conditions:
1. Track Mysteel’s daily sintering utilization reports
2. Monitor provincial power rationing announcements
3. Use scaled-in position entry avoiding volatility traps
These synchronized surges demonstrate tangible policy-to-market transmission. While vertical limit-ups entertain headlines, sustained profits require discerning structural changes.
The Final Trade Setup
Despite euphoric displays like today’s vertical limit-ups, disciplined investors should:
– Consult profit projection upgrades via CNInfo disclosures
– Verify capacity-curb implementation compliance
– Weight exposure toward firms with manageable debt exposure
The fireworks fade quickly; economic mechanics endure.
