Declining demand and cost collapse are the main reasons for the sharp drop in steel prices this round
In 2016, the profit of producing one ton of steel was not as profitable as a bottle of mineral water. This year is not good. Some long-process steel mills make a profit of 200 yuan per ton of steel, and some rolling mills in Tangshan area have to lose 100 yuan per ton of steel. In May of this year, the profit of the rolling mills in Tangshan area was about 320 RMB/ton. In less than half a year, from a profit of 320 RMB per ton of steel to a loss of 100 RMB, what have these steel mills experienced? A steel trader said that the recent coal, coke and steel people’s heart to buy from the bottom is cold. How miserable is the status quo of the steel industry now? When will it be possible to usher in the moment when the “will be in the dark”?
Declining demand and cost collapse are the main reasons for the sharp drop in steel prices this round
Since November, the price of steel products has declined smoothly. The main contract for rebar and hot-rolled coil futures fell about 5.8%. The spot price cut is stronger than the futures. Shanghai HRB400E20MM rebar dropped from 5,250 yuan/ton on November 1 to 4,680 yuan/ton on the 10th, and rebounded to 4870 yuan/ton on the 11th to the 12th. The cumulative reduction in two weeks was 380 yuan. /Ton, a decrease of 7.24%, and a decrease of 570 yuan/ton in the first ten days of November, a decrease of 10.86%; Shanghai 4.75 hot-rolled coils dropped from 5220 yuan/ton on November 1 to 4,700 yuan/ton on the 10th, and on the 11th It rebounded to 4850 yuan/ton, and then fell to 4780 yuan/ton on the 12th. In the two weeks, it was reduced by 440 yuan/ton, a decrease of 8.43%, and it was reduced by 520 yuan/ton in the first ten days of November, with the largest decrease of 9.96%.
“The core reason for the recent decline in the black line is that weak demand and cost collapse have formed resonance: on the one hand, terminal demand in the peak season is less than expected, and the valuation of finished products has fallen; on the other hand, the supply of coal has increased and the cost has collapsed. Due to the shortage of coal in the early stage, Prices have risen sharply. With the implementation of the government’s measures to maintain supply and stabilize prices, coal supply and demand eased, resulting in lower costs for black products.” said Zhou Minbo, chief black analyst of GF Futures.
Qiu Yihong, a researcher at Haitong Futures Steel Mines, also believes that the main endogenous driving force for the decline in steel prices can be attributed to the fact that the contraction in demand is stronger than the contraction in supply. The unabated decline in raw material prices also continues to weaken the support for steel costs. There is still a significant negative feedback effect on the downward trend.
In fact, this week’s thread output was 2,826,500 tons and hot coil production was 3.013,900 tons. Although steel production increased month-on-month after the relaxation of power restrictions in October, it is still at a historical low level in the past five years as a whole. Taking into account the sharp decline in profit per ton of steel after the sharp drop in prices, some regional companies have already suffered losses. And after the winter in Beijing-Tianjin-Hebei and its surrounding areas, the pressure to restrict production will increase. There is no room for further increase in steel production in the future. The main pressure now lies on the demand side. On the one hand, demand will gradually decline after entering the off-season. On the other hand, the disturbance of the epidemic is also detrimental to demand. Under the weak demand, the social stocks of steel fell very slowly, and the stocks of steel mills even began to increase. The overall supply and demand fundamentals of steel are weak, but the price continues to fall, which requires a lower cost end to cooperate.
“At present, steel and coke are both weak in supply and demand. From the perspective of supply and demand in the steel industry chain, although the supply side is close to the end of the crude steel production leveling, the air quality control during the heating season will make up for the continuity of policy control. The pattern of cost inversion will also have certain restrictions and impacts on the production of steel companies, and it is expected that the supply side will have limited room for recovery.” Qiu Yihong said that the demand side remains weak, and the current demand margin has not shown signs of improvement. The downstream industry terminal demand has no bright spots. Social inventories continue the passive destocking stage, and the spot price of steel still has the risk of compensatory decline driven by weak demand and the downward movement of raw material costs. However, as the market’s relevant real estate policies and expectations for the loosening of credit and monetary policies heat up, market sentiment has slightly recovered from the previous month, and panic has weakened. In the context of high steel price basis, low north-south price gap, and the inverted steel cost, There is a high probability that the steel market will continue to focus on the basis repair, and the futures prices have limited room for deep decline, or will enter the bottom oscillation adjustment stage. However, we still need to focus on observing the performance of raw material prices and the steel market sentiment reflected by the continuity of demand and inventory conditions.
For coke, the combined average daily output of independent coking companies and steel mills is about 970,000 tons, which has dropped by nearly 200,000 tons since mid-August, and the supply side has fallen sharply. In terms of demand, the output of molten iron has dropped significantly, and the current average daily output of molten iron is only less than 2.03 million tons. Supply and demand are simultaneously falling, and the total coke inventory in each link is still at a historical low. From the comparison of static data, the fundamentals of coke supply and demand are still tightly balanced. However, demand from steel mills has fallen sharply, while the total coke inventory of steel mills has not changed much, and the number of days available for inventory has increased significantly. On the other hand, coking companies have already accumulated more than 400,000 tons of warehouses since the end of September. The game mentality between the supply side and the demand side has been reversed, pricing power is tilted to steel mills, and four rounds of ups and downs have quickly landed.
“Currently, the total coking coal inventory has been slowly accumulating for 2 consecutive months. The accumulating rate has accelerated recently, especially the coal mine inventory, indicating that the fundamentals of coking coal supply and demand have improved significantly. Coking coal prices have fallen sharply, especially Mongolia 5# clean coal. On the 12th, it fell by 600 yuan/ton in one day, and the market is expected to further increase in coke.” said Zhao Yongjun, a senior researcher in the black department of China Securities Futures.
It is worth noting that compared with steel and coke, iron ore has a longer decline cycle. Since the third quarter, steel has been affected by factors such as equal control, “dual carbon” policies, and “dual control” of energy consumption and power curtailment. The foreign production and import of iron ore have not been affected, so it peaked from July 19 and the decline continues to the present. Futures I2201 fell from 1143 yuan/ton to 550 yuan/ton, a decrease of 593 yuan. In terms of spot, Rizhao Port’s PB powder fell from 1488 yuan to 610 yuan/ton, a decline of 878 yuan/ton, and the super special powder fell from 1044 yuan/ton to 390 yuan/ton, a decline of 654 yuan/ton. The main reason for the decline was that the high profits of the ore in the early stage led to the increase in shipments and imports and the reduction in the demand for iron ore raw materials due to the limited production of steel mills, which led to the continuous accumulation of iron ore port inventory, which climbed from 120 million tons to more than 150 million tons.
Chen Xiaowei believes that the current supply of steel is affected by the limited production during the heating season and the reduction in profits of some steel mills caused by higher raw materials in the previous period. Weak, but due to the marginal recovery of real estate financing policies, and the recent increase in the resumption of work in the pre-halted projects, the margin of demand has improved. Inventory is generally at a seasonally high level, but from last week’s exhausted inventory to this week’s re-deposited inventory. Therefore, the overall supply and demand side of steel is weak but the margin is improving. In terms of coke, both supply and demand were weak, and output remained low, while demand was weakened by the continued decline in molten iron. Inventories were generally at a low level, but the accumulation of stocks has accelerated slightly recently.
When will “liu faminghuaming” stay?
Steel mills have been able to complete the annual level control requirements, but the heating season limited production will continue. In terms of demand, on the one hand, it has gradually entered the mid-to-late peak season, and on the other hand, recent policies have picked up. In addition to the real estate financing policy, in recent ministries and commissions in conveying and learning the spirit of the Sixth Plenary Session of the 19th Central Committee of the Communist Party of China, the central bank stated that it “coordinates and considers the convergence of policies this year and the next to better support the recovery of consumption and investment, curb excessive price rises, and promote economic and social development. “High-quality development”, the Ministry of Industry and Information Technology stated that “we must take multiple measures to stabilize and boost the industrial economy in the fourth quarter, focus on expanding effective demand in the industrial sector, increase relief assistance for small and medium-sized enterprises, strengthen factor protection, and maintain the stable operation of the industrial economy to ensure Complete the goals and tasks for the year.” Therefore, in terms of promoting the recovery of consumption and investment and boosting the industrial economy in the fourth quarter, policies will be introduced one after another in the later period.
“After the current black industry chain has fallen sharply, under the influence of policies, demand is expected to further recover marginally in the fourth quarter. Inventories are expected to continue to deplete in the later period after short-term blockade. Therefore, the rapid decline of steel is coming to an end and will gradually enter the bottom of the oscillation. And the upswing stage.” Chen Xiaowei said.
According to the reporter’s understanding, the continuous downward adjustment of coke prices has reduced the profits of coke companies. A few coke companies have already suffered losses, and some coke companies have actively restricted production. In terms of demand, the increase in production restriction and maintenance of steel plants and the decline in operating rates have directly suppressed coke demand, and Most steel mills are controlling the arrival of goods, the coke market sentiment continues to be weak, and coking companies have also experienced a more obvious phenomenon of accumulation. The weak spot demand still has the upper hand, and the coke spot is still weak.
“The spot price of coke will continue to fall. Under the pessimistic situation, the price is expected to drop to about 2600 yuan/ton this year. The futures disk price will mainly oscillate around the 2,600 yuan/ton range. For steel, the production is estimated at a coke price of 2600 yuan/ton. The cost is about 3800 yuan/ton, the cost of electric furnace is 4500 yuan/ton, and the inventory cost is about 4900 yuan/ton. The recent spot price is expected to oscillate around 4900 yuan/ton, and the 2205 contract will test the support of 3800 yuan/ton. It is expected to return to the cost of electric furnaces.” Zhao Yongjun said.
Chen Xiaowei believes that the later trend of coke will depend on the extent and speed of inventory accumulation before delivery in January next year on the one hand, and on the other hand will also depend more on the trend of steel. In terms of iron ore, the accumulation of stocks is still continuing, but the current high inventory is basically reflected in the price. The current price has gradually approached the cost of non-mainstream mines. The short-term forecast is mainly for a negative decline, but the decline may not be large. The future trend depends on the mine’s shipment. Situation and steel trends.
“The current high decline in the black series is due to the declining demand and the gradual alleviation of supply-side problems. The market transaction valuation has returned to logic. This commodity bull market was caused by global monetary easing during the epidemic to stimulate demand. As the tide recedes, commodity valuations will Regression. The main problem in the short-term is that as the delivery month approaches, the basis repair logic may cause futures to change.”