Short-term steel price is hard to be optimistic because of shrinking supply and synchronous decline of demand in steel market

he main thread steel 1801 contract fell sharply, closing at 3577 yuan/ton last Friday, down 199 yuan/ton from the previous week.We believe that, on the one hand, the supply side is good and basically released, Wu’an and Tangshan limit production and landing, the market has been digesting the winter limit since November 15 for a long time, and the boosting effect of supply contraction is weakening marginally.On the other hand, since mid-October, terminal demand has been weakening continuously. The demand in northern China is stagnated by environmental protection and weather factors. The performance of terminal demand in other parts of the country is not ideal. The increasing efforts of Beibusai South bring greater psychological pressure to the market. Overall, steel supply contracted, demand fell synchronously, short-term steel prices are difficult to say optimistic.

Terminal demand continues to weaken

After the Eleventh Holiday, the national terminal transactions showed a trend of gradual weakening. Especially last week, terminal demand significantly shrank, and the pressure on traders to ship goods increased. Regionally, due to the poor air quality, environmental protection pressure still exists in the northern region, the superimposed weather quickly turns cool, most construction sites are stagnant, and the demand is shrinking.

Poor shipment in the North has led to increasing efforts from Beibusai to the south. In recent years, the number of ships arriving at ports in South China has increased significantly, and port congestion has become more serious. This year, North Timber went to South China earlier than in previous years, and its strength was stronger than in previous years. Therefore, East and South China are facing greater supply pressures.

Disadvantaged raw materials continue to drag down the production

The main varieties of raw materials, such as iron ore and coke, have fallen since late August. Over two months, iron ore and coke have fallen by 30.27% and 33.55% respectively from their highs. The reason is that under the background of large-scale production restriction in steel mills, raw materials are facing a cliff-like decline in demand. Raw material prices have weakened again after a small rebound, especially iron ore, creating a new low, which makes the market believe that the collapse of the cost of the whole industrial chain caused by raw materials has not ended.

Spot iron ore and coke are still facing a great test. Spot iron ore has been in a low turnover for several weeks. It is common for traders to dump their products at low prices and exchange their prices for quantities. Spot coke prices have been sharply lowered consecutively. The continuing downturn at the raw material end is a drag on the price of finished products.

The slowdown of social inventory

Last week, Mysteel counted 9.994.2 million tons of social steel stocks nationwide, a decrease of 62.1 million tons annually, a significant slowdown. In the three weeks after National Day this year, the total social stock of steel fell by 495,700 tons. In the same period of 2015, it dropped by 104,08,000 tons, and in the same period of 2014, it dropped by 1,543,000 tons. By contrast, the stock decline rate after National Day this year is the lowest in the past three years.

Against such a backdrop of supply contraction, the decline in social inventories is not as fast as expected, reflecting poor demand downstream during the peak October season.

To sum up, we believe that the supply side is basically released, and terminal demand continues to weaken. The northern region is affected by environmental protection and weather factors, and demand stagnates. Steel market supply contracted, demand fell synchronously, short-term steel prices are difficult to say optimistic.

Post time: Oct-30-2019