At present, the market optimism is gradually picking up. It is expected that the transportation logistics and terminal operation and production activities in most parts of China will return to the normalization stage from mid April. At that time, the centralized realization of demand will boost the steel price.
At present, the contradiction at the supply side of the steel market lies in the limited capacity and obvious squeeze on profits of the steel plant caused by the high charge price, while the demand side is expected to perform strongly after the game. As the transportation problem of furnace charge will eventually be alleviated with the improvement of the epidemic situation, under the condition that the steel plant cannot effectively transmit to the downstream, the short-term increase of raw material price is too large, and there will be some callback pressure in the later stage. In terms of demand, the previous strong expectation has not been falsified by the market. April will usher in a centralized cash window. Boosted by this, the steel price is easy to rise but difficult to fall in the future. However, we still need to be vigilant against the risk of falling short of demand expectations under the influence of the epidemic.
Steel mill profit to be repaired
Since March, the cumulative increase of steel price has exceeded 12%, and the performance of iron ore and coke in charge is stronger. At present, the steel market is strongly supported by the cost of iron ore and coke, driven by strong demand and expectation, and the overall steel price remains high.
From the supply side, the capacity of the steel plant is mainly subject to the tight supply of charge and high price. Affected by the epidemic, the import and export process of automobile transportation is relatively complex, and it is very difficult for materials to arrive at the factory. Take Tangshan as an example. Previously, some steel mills were forced to shut down the furnace due to the depletion of auxiliary materials, and the inventory of coke and iron ore was generally less than 10 days. If there is no incoming material supplement, some steel mills can only maintain the blast furnace operation for 4-5 days.
In the case of tight supply of raw materials and poor warehousing, the price of furnace charge represented by iron ore and coke has risen, which has seriously squeezed the profits of steel mills. According to the survey of iron and steel enterprises in Tangshan and Shandong, at present, the profits of steel mills are generally compressed to less than 300 yuan / ton, and some steel enterprises with short charge can only maintain the profit level of 100 yuan per ton. The high price of raw materials has forced some steel mills to adjust the production ratio and choose more medium and low-grade ultra-special powder or printing powder to control the cost.
As the profits of steel mills are severely squeezed by upstream costs, and it is difficult for steel mills to pass on cost pressure to consumers under the influence of the epidemic, steel mills are currently in the stage of attack at both upstream and downstream, which also explains the recent strong raw material prices, but the increase of steel prices is far less than that of furnace charge. It is expected that the tight supply of raw materials in the steel plant is expected to ease in the next two weeks, and the upstream raw material price may face some callback pressure in the future.
Focus on the important window period in April
The future demand for steel is expected to focus on the following aspects: first, due to the release of demand after the epidemic; Second, the demand of infrastructure construction for steel; Third, the overseas steel gap caused by the conflict between Russia and Ukraine; Fourth, the upcoming peak season of traditional steel consumption. Under the previous weak reality, the strong expectation that has not been falsified by the market is also mainly based on the above points.
In terms of infrastructure construction, under the background of steady growth and counter cyclical adjustment, there is a trace of fiscal development in infrastructure construction since this year. Data show that from January to February, the national fixed asset investment was 5076.3 billion yuan, an increase of 12.2% year-on-year; China issued 507.1 billion yuan of local government bonds, including 395.4 billion yuan of special bonds, significantly ahead of last year. Considering that the steady growth of the country is still the main tone and the development of infrastructure is imminent, April after the relaxation of epidemic control may become a window period to observe the expected fulfillment of infrastructure demand.
Affected by the conflict between Russia and Ukraine, the global steel export demand has increased significantly. From the recent market research, export orders of some steel mills have increased significantly in the past month, and the orders can be maintained until at least may, while the categories are mainly concentrated in slabs with small quota restrictions. In view of the objective existence of the overseas steel gap, which is difficult to repair effectively in the first half of this year, it is expected that after the epidemic control is relaxed, the smoothness of the logistics end will further boost the realization of export demand.
Although exports and infrastructure construction have brought more highlights to the future steel consumption, the demand for real estate is still weak. Although many places have introduced favorable policies such as reducing the down payment ratio of house purchase and loan interest rate, from the actual sales transaction situation, the residents’ willingness to buy houses is not strong, the residents’ risk preference and consumption tendency will continue to decrease, and the steel demand from the real estate side is expected to be greatly discounted and difficult to fulfill.
To sum up, under the neutral and optimistic sentiment of the market, it is expected that the transportation logistics and terminal operation and production activities in most parts of China will return to the normalization stage from mid April. At that time, the centralized realization of demand will boost the steel price. However, when the real estate downturn continues, we need to be vigilant that the demand for steel may face the reality of weakness again after the fulfillment period.