Costs determine the fourth quarter steel operation center

After the National Day holiday, end-users concentrated their purchases after the holiday, market transactions were enlarged, and steel spot prices and prices increased. However, market sentiments remained cautious. How to operate steel prices later?

First, demand will gradually weaken

In order to curb the excessive growth of housing prices, many ministries and commissions of the country once again made efforts to regulate and control the property market, and introduced policies such as raising the proportion of down payments, adjusting the deed tax and personal income tax preferential policies for housing transactions, and accelerating the implementation of pilot projects on real estate reform. Some local governments also adopted policies. Actively follow up. Shanghai, Shenzhen, Hangzhou, Ningbo, Xiamen and other places have successively introduced "restricted purchase" policies. The regulation and control policies of the real estate market will, to a certain extent, affect the enthusiasm of developers to start construction and thus affect the real estate industry's demand for construction steel.

The affordable housing policy benefits the price of construction steel. This year, the Guaranteed Housing Project completed 60% of the annual investment plan, reaching 470 billion yuan, including the 69.2 billion yuan of central government special subsidy funds that have been released. The Ministry of Housing and Urban-Rural Development requires that all safe housing projects be completed before the end of September, and that the completion or basic completion at the end of the year should reach more than 60%. This task has determined the concrete completion progress and will effectively mobilize the enthusiasm of the local government to start construction. The demand for construction steel for affordable housing will be further magnified.

9, 10 for the construction steel consumption season. However, from November onwards, frozen weather made the Northeast and North China unsuitable for construction sites, and construction steel consumption also entered the off-season. As a whole, the demand for construction steel in the fourth quarter will slow down, showing a clear weakening trend.

Second, supply pressure remains high

Although the market's speculation on energy conservation and emission reduction has rapidly cooled down recently, the author believes that energy saving and emission reduction efforts have not been significantly relaxed. The energy-saving emission reduction policy will tend to be flexible. In the later period, the “one-size-fits-all” short-term “shock operation” will be significantly reduced, and scientific, rational, and orderly energy conservation and emission reduction measures will occupy the mainstream.

As a representative of high energy consumption and high emissions, the steel industry has naturally become the focus of energy conservation and emission reduction efforts of local governments. According to data from the China Iron and Steel Association, the impact of energy-saving and emission-reduction policies on steel production: In mid-September, the crude steel output of the members of the China Iron and Steel Association was 11.55 million tons, the national estimate was 15.47 million tons, and the average daily output was 1.305 million tons respectively. 15.47 million tons, down 67,000 tons and 150,000 tons respectively from the previous month, with a drop of 5% and 9% respectively. In terms of sub-categories, the decline in relatively low-end rebar and wire rods will be most pronounced. With the extension of the implementation time of the policy, the cumulative effect will gradually appear, and the supply pressure of steel products will be eased in the later period. However, due to the historically high level of steel production capacity in China this year, the overall supply pressure remains high.

Third, the spot inventory is high

As the growth of terminal demand is not as fast as the release of production capacity, spot inventory has been maintained at a relatively high level. At the same time, during the National Day holiday, the spot market basically stopped trading, and the inventory of agents was in a state of “no entry only”, resulting in an increase in the total inventory stock. According to statistics, as of October 8, the total stock of construction steel in major cities nationwide reached 7.536 million tons, an increase of 38% year-on-year. Among them, rebar inventory was 5.642 million tons, an increase of 36% year-on-year; wire stock was 1.894 million tons, an increase of 42% year-on-year.

From the production of the organization to the final inflow into the spot market, the delivery period of steel products is around one month. Therefore, the energy-saving emission reduction policy in September will reduce the shipments of steel mills in October. At the same time, after the National Day holiday, end-users may take supplemental inventory measures, and the spot market is expected to see a small peak of procurement, and inventory will decline significantly. Since November, construction steel has entered the off-season consumption period, while steel supply has remained relatively stable and spot inventory will increase. Therefore, the spot inventory level in the fourth quarter will show a downward trend. Due to the high inventory backlog in the previous period, the inventory level in the later period will be significantly higher than the level of the same period last year.

Fourth, the supporting role of costs has become apparent

The recent steel prices have fluctuated sharply, and the spot price of iron ore has not followed the upward trend. Although the price of iron ore agreements fell slightly in the fourth quarter, the increase in ocean freight charges to a certain extent offset the cost reduction brought about by the decline in the price of iron ore agreements. Calculated by the current agreement price and freight rate, the car port price of the current port (car plate price is the price of the goods loaded on the train or car, under normal circumstances, the car plate price = spot price + short-distance tariff + local fare + payment fee ) It is already close to the CIF (offshore price + sea freight) for the agreement mine in the fourth quarter. Imported iron ore is already unprofitable, which provides support for stabilizing iron ore spot prices. Coupled with the willingness of some steel mills to make up the reserve, iron ore prices are expected to pick up in the later period.

After the consolidation of coal resources in various regions, the production capacity of small coal mines has been significantly reduced, while large coal enterprises have failed to release their production capacity quickly, resulting in a lower coking coal supply growth rate than coking coal in the domestic coke industry and a high coking coal price. On the other hand, the low price of steel prices has reduced the profits of steel mills, prompting steel mills to lower coke procurement prices to ease their cost pressures. Upstream and downstream attacks have caused the coke industry to suffer long-term losses. The industry's overall limited production rate has reached about 30%, and there is little room for coke prices to fall.

With 63.5% iron ore 1150 yuan / ton, secondary metallurgical coke 1750 yuan / ton, the current production cost of secondary rebar is 4,200 yuan / ton (including tax), the production cost of tertiary rebar is 4,300 yuan / Ton (including tax). Taking into account the period costs and factory freight, the current steel mill's profits have been very meager. If the steel price further falls sharply, large losses in the steel industry will be unavoidable. Some steel mills will be forced to restrict production or even stop production to reduce losses, while the reduction in supply will cause steel prices to regain gains. Therefore, relatively strong iron ore prices and coke prices have played a significant role in supporting steel prices.

V. Conclusion

On the whole, the supply pressure of construction steel in the fourth quarter is still large, and the overall demand will gradually weaken, high spot inventory and other factors, the price is difficult to operate strongly, the profitability of the entire industry will be more limited. The author believes that the production cost will determine the operating center of steel prices in the fourth quarter, and related companies can look for opportunities for hedging based on their own profit. At the same time, the author predicts that the prices of raw materials such as iron ore and coke will rise steadily in the fourth quarter, and the focus of steel prices will also increase slightly.