Is steel the status quo or is it ready to go?

Since the beginning of this year, the steel market has maintained a semi-closed state: on the one hand, steel companies’ inventories and social inventories continue to accumulate and break through the historical highs of the same period; The simultaneous catalysis of both supply and demand has led to the current steel mills and steel traders generally facing greater inventory pressure and capital return problems. Undoubtedly, the combination of high inventory and sluggish demand has formed a trend of suppressing steel prices. The data shows that since mid-October 2021, the price of steel has been oscillating downward, and it has fallen to 4480 points on June 23, down 1720 points, hitting a new low in 8 months.

The falling steel prices are bit by bit eating into the profits of steel mills and steel traders. The reporter of Futures Daily learned in the interview that the current steel market is in the off-season, the profits of the whole black industry chain are shrinking, and steel enterprises and steel traders generally suffer losses.

Why did the steel market come to this? The reporter learned from a number of industry insiders that under the background of rising global inflation risks, increasing downward pressure on the economy, repeated disturbances of the new crown pneumonia epidemic and the current rainy season, the downstream steel industry has resumed work. The behavior has not been released centrally, and the demand in many places is still delayed. With demand recovering slower than expected, the risk to steel mills and traders in terms of inventories remains high.

Right now, as inventories remain high and steel prices are under pressure, steel mills have voluntarily reduced production. Although the price of coke has been lowered, the price of coking coal and iron ore is still at a staged high. Where will the subsequent steel market go?

steel inventory

the highest level in history

Recently, the social inventory level of rebar has maintained the highest level in the history of the same period, the social inventory of hot coil has once again hit the highest level in the history of the same period, and the social inventory of the five major building materials has also maintained the highest level in the history of the same period.

Talking about the inventory of steel mills, a person from a steel company in East China told reporters that the inventory of rebar steel mills also remained at the highest level in the same period, and the inventory of long and short process steel mills was the highest in the same period. The only thing that has eased the pressure is the inventory of hot coil steel mills that can still maintain a low level, but the inventory of steel mills in the northern region is still at a high level in the same period, so there is also a certain risk of inventory in general.

Industry insiders said that from the perspective of time, the accumulation of steel inventories to a high level has its inevitability and chance.

"This year's steel market has many twists and turns. March and April should have been the time for steel to go to the warehouse, but due to factors such as epidemic prevention and control, the pace of steel mills' shipments has slowed down, and the steel mill's inventory has not been depleted as scheduled. Instead, it shows the characteristics of oscillating and flattening. Due to the successive arrival of in-transit resources in the early stage, social inventory has rebounded significantly month-on-month; coupled with the impact of the epidemic on terminal demand, the enthusiasm for purchasing has declined, causing the market transaction volume to drop month-on-month, which in turn leads to the market The overall pace of inventory reduction is slow." said Zhang Shaoda, a black researcher at CITIC Construction Investment Futures. Entering June, the epidemic prevention and control measures are coming to an end, and the transportation conditions have been greatly improved. However, under the condition of low production, the destocking of steel stocks is still not smooth. The situation of poor downstream demand and weak transactions has not changed, resulting in an increase in inventory data, which is currently the highest level in history for the same period.

"From the perspective of steel inventory multiples, after the Spring Festival this year, the steel inventory multiples showed two stages of performance. First, the inventory multiples caused by the decrease in social inventory and the increase in steel mill inventories fell from a high level in the same period to a low level in the same period, reflecting weak demand. , steel traders lack willingness to take goods, sales are not smooth, and demand digestion is not as fast as supply; the inventory multiples of hot coil and rebar began to rebound in early May and mid-May, generally due to the slight accumulation of social inventory and the slight increase of steel mills. Going to the warehouse, the supply has not shrunk significantly, so it reflects that demand is still weak, and the pressure on steel prices has not been significantly improved." said Qiu Yihong, a researcher at the black department of Haitong Futures.

Another accidental factor is that due to the impact of epidemic prevention and control, post-holiday steel mills are faced with an embarrassing situation where both raw material procurement and downstream demand are unfavorable.

Cai Yongzheng, president of Jiangsu Fushi Data Research Institute and chief futures analyst of Nangang Jinmao Gangbao, told reporters that demand has not fully recovered recently, and the increase in steel production is slowly picking up, and demand cannot keep up with the increase in the entire supply side. In fact, even though the supply side has contracted spontaneously, it is clear that demand has fallen faster. With the current demand intensity, it is undoubtedly difficult to achieve off-season destocking.

Cai Yongzheng told reporters that the specific crude steel reduction target has not yet been released. State-owned steel mills need to take social responsibility, and the possibility of large-scale production reduction is small, but the current price has fallen below the cost of blast furnaces, and some private steel mills have begun to implement reduction maintenance plans. to reduce inventory.

"Recently, individual steel mills in Tangshan have begun to reduce production and overhaul their blast furnaces, and other steel mills plan to overhaul their blast furnaces in July.

A steel trader in central China told reporters that this year's epidemic has had a relatively large impact on both the supply and demand sides of the steel industry. The impact on the demand side is obviously greater than that on the supply side. After the holiday, the steel market is characterized by "reduced supply and weak demand", and steel prices have fallen sharply. This week, the spontaneous production reduction of steel mills is concentrated on rebar, which has achieved initial results in improving the supply and demand of rebar, and the first time to achieve destocking, but it will take time for the supply and demand of HRC to improve.

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