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Steel Industry Research Weekly: Weak Supply and Demand, Waiting for Inventory to Clear

Affected by the drop in spot prices of bifocals this week, billet costs have dropped sharply, and steel prices have fallen in the same proportion as bifocals, resulting in a ton of steel profit that has not expanded as we expected. The main reason is that although the current production cuts continue to strengthen, However, the demand side is also weak. Judging from the procurement volume of wire spirals in Shanghai, in addition to the continuous improvement from August to September, the month-on-month decline again after November. The weak demand for real estate construction chain makes it difficult to improve the demand for rebar in the short term.

When will the profit per ton of steel expand again? We believe that the industry chain inventory needs to be fully depleted. Although the current steel inventory continues to deplete, there is still a 30+% increase compared to the beginning of the year, indicating that the inventory is exhausted throughout the year. After part of the incremental inventory is eliminated, the impact of the supply-side production reduction may be truly reflected.

From the statistics of the Bureau of Statistics, the cumulative crude steel output in the first September was 806 million tons and the pig iron output was 671 million tons, which was 2.00% and -1.30% year-on-year respectively. The output of pig iron fell for the first time, and the effect of the reduction in production was apparent. From the perspective of the overall supply and demand contraction of steel, the contraction in supply is greater than the contraction in demand. As the subsequent stocks are sufficient, the effect of production reduction will gradually manifest.

Iron ore and double coke are the main production costs of steel billets. At present, iron ore has fallen from a high level. As the price of double coke continues to return to a reasonable level with policy control, the cost of steel billets may gradually peak. From the perspective of less impact from the reduction in production, pay attention to Linggang, Fangda Special Steel, Xingang, Sangang Minguang, etc.; from the perspective of growth, it is recommended to pay attention to: Jiuli Special Materials and Guangda Special Materials.

Terminal demand is weak, and production restrictions continue to advance

The procurement volume of thread snails in Shanghai was 15,900 tons, a decrease of 3.6% from the previous month, and a decrease of 17,200 tons compared with the same period last year, and a year-on-year decrease of 52.0%. The operating rate of blast furnaces this week was 48.48%, down 3.59pct from the previous month; the operating rate of electric furnaces was 61.54%, down 1.28pct from the previous month.

Iron ore prices continued to fall, and bi-coke prices peaked

Iron ore futures prices fell 55 yuan/ton to 587 yuan/ton, an increase of -8.57%; coking coal futures prices fell 208 yuan/ton to 3400 yuan/ton, an increase of -5.76%; coke futures spot prices rose 210 yuan/ Ton to 4326 yuan/ton, an increase of 5.09%. The total shipment of overseas iron ore was 21.431 million tons, an increase of 1.22 million tons or 6% month-on-month; the total arrival of ore from northern ports was 11.234 million tons, a decrease of 1.953 million tons or 15% from the previous month.

Steel prices fell, gross profit per ton of steel fell

From the perspective of the profitability of different steel products, iron ore prices continued to fall as the price of bi-coke peaked and fell, billet costs began to fall, but steel prices fell, and gross profit per ton of steel fell. In terms of breakdown, the gross profit per ton of long-flow rebar is 602 yuan/ton, and the gross profit per ton of short-flow rebar is 360 yuan/ton. Cold rolling has the highest profitability, with a gross profit per ton of 1232 yuan/ton for the long process and RMB 990/ton for the short process.

Risk warning: The macroeconomic recovery is not as expected; the global inflation level exceeds expectations; the increase in ore production does not meet expectations; the progress of the development and vaccination of the new crown vaccine is lower than expected.

Post time: Nov-08-2021