The Contradiction Between Supply and Demand in China's Steel Industry is Still Sharp

From the beginning of July to the present, the price of the main contract of Shanghai Steel fell by about RMB 500/ton, and continued to hit a new low. The market once again fell into pessimism. In order to more accurately grasp the industrial chain, we investigated the steel market in Handan, Hebei.

As the price of ore decreased, the inventory of the port was difficult to eliminate. The iron ore prices of iron ore produced by steel mills continued to fall. The price of imported ore fines from Australia, Brazil and India had reached a record low since 2010. In the wave of price declines from July to the present, Brazil's 64.5%, 63.5% in India, and 61.5% in Australia's PB prices fell by 160, 145 and 170 yuan/ton, respectively, down from 14.4% to 17.5%. With the declining steel prices, the inventory of iron ore iron ore in the late period has led to a high level of port inventory, and has been hovering at a level of 10,000 tons in the past six months. Wind data shows that on August 17th, iron ore iron ore stocks in China's ports have been significantly reduced compared with before. According to raw material factory workers from a large steel company in Hebei, “Former iron ore iron and steel companies have faced severe The use of low raw material stockpiles to reduce the operational burden. The steel stocks have 1.5 million tons, which has now been reduced to 500,000 tons." The steel mills reduced inventory to 98.12 million tons. Affected by this, there is still room for a drop in import prices. The decline in raw material costs has provided impetus for the drop in steel prices.

Steel mills have greater sales pressure, but there is no shortage of scale. The inventories of galvanized sheet factories and other deep-processing companies are not small, and steel sales are under tremendous pressure. Steel mills have started to mobilize employees for sales, and companies have entered the “national marketing” era. At present, private steel mills have large inventories. Downstream, despite weak sales, the willingness of steel mills to reduce production is not strong. The main reason is that the shutdown of blast furnaces will cause huge economic losses, and the reduction in production means that companies actively reduce market share. The above two factors lead to high social steel stocks. According to my steel network statistics, on August 17, the rebar inventory of major cities in China was 6,506,500 tons, an increase of 92,600 tons from the previous week, an increase of 1.44%. Unless there is a large-scale reduction in the production of large-scale blast furnaces, it will be difficult for steel stocks to fall sharply. Contradiction between supply and demand will remain sharp and steel prices will hardly pick up.

Market turnover was deserted, and traders generally "zero inventory"

When we visited several large steel markets in Handan, we found that the markets were generally deserted. Especially since June and July of this year, the business volume has been reduced, and steel traders are also meticulous when purchasing goods. “One customer has already calculated the budget of the steel pipe to the nearest meter. It used to be tons of purchases. It doesn’t care that much. "The manager of Wangjiang Logistics Park engaged in steel sales complained. It is understood that there are very few merchants who buy goods, usually after receiving orders from the steel mills directly to the customer site, in order to reduce the price risk and inventory costs.

The data released by the National Bureau of Statistics recently shows that as the most important downstream demand industry for rebar, the real estate industry is in a weak state and the demand for rebar is hard to maintain. In July, the domestic steel industry's PMI was 44.5%, a decrease of 4.7 percentage points from June, and as a leading indicator, the domestic steel industry's new orders index was only 33.3% in July, a 13% drop from June, suggesting that August and September Market demand remains weak.

Steel traders reflected that with the oscillation of steel prices bottoming out, end-users are also tentatively purchasing while watching. However, judging from the July economic data, the effect of the previous policy was not obvious. Imports and exports, industrial added value above designated size, fixed asset investment, and previous PMI all showed that the economic downturn has not stopped. With liquidity already so loose, the marginal effects and relaxation of monetary policy are extremely limited. In summary, the contradiction between supply and demand in the market is still sharp, and the drop in raw material prices may become a destabilizing factor in the later period. It is expected that the main contract price of 1301 will run within the range of 3,500-3,660 yuan/ton.