Economic Observer Reporter Chen Shan sells down stampede in the steel market, and industry profits have reached a low point.
Recently, steel prices have fallen beyond expectations, and steel mills and traders have fallen into losses, and pessimism has enveloped the entire industry. Wang Haijie, who has more than ten years of experience in steel, has not seen this phenomenon in many years - overproduction, demand declines, some traders panic and smash prices, and the bottom of steel prices continues to move.
html Since June, steel prices have continued to fall, with a rapid decline, and they have reached their extreme on June 20. On that day, the price of rebar futures plummeted sharply, falling below 4100 points at one point, closing down for six consecutive trading days, falling to 4074 yuan/ton, setting a new low for the past seven months. The spot price of rebar was not spared. After entering a chaotic sell-off situation on the weekend, the price drop of more than 100 yuan per ton on that day.steel price has reached freezing point, and the losses of steel mills are also deepening. According to the tracking data of Lange Steel Research Center, on June 23, the gross profit of steel ton of steel calculated based on two-week raw material inventory had lost to about 500 yuan. The last time such a loss occurred was in 2015.
Wang Haijie is the head of Jinfeng Trading Co., Ltd., Fengrun District, Tangshan City. He told the Economic Observer reporter that "overproduction and declining demand" are the current situation of the steel industry. According to him, downstream dealers currently receive less goods, and the company's sales volume has decreased by about 20% to 30% compared with the same period last year. As the current situation of steel prices falling unstoppable, trade wholesalers dare not get goods from steel mills to restock, and can only "live flat". "Can't sell" is a common phenomenon in the steel trade link now. Wang Haijie said, "Now people come to get goods are all urgent needs." "The situation this year is indeed a bit difficult. I sweat more than last year, but I earn less money than last year. Especially in the past two months, some losses have begun to occur." Mr. Cui, a steel trader in Guangdong, also told reporters that steel demand this year is very weak, and the company's current sales have been cut in half compared with the same period last year.
According to Mr. Cui, "Affected by the industry's sluggish environment, the company's employee income has dropped sharply. Among the 30 salesmen, 6 resigned last month and 4 resigned this month. I don't know if the remaining elite soldiers can withstand it." The "strong expectations" game "weak reality". After the steel price has failed again and again and again, and the has continued to bottom out of , there has been no sign of reversal. Steel mills and traders may be a bit far from dawn.
plunge is traced because
steel prices have just experienced a round of plunge and have not seen any signs of stabilization and recovery.
htmlOn June 20, the main continuous contracts of rebar futures in the Shanghai Futures Exchange fell to 4,074 yuan/ton, setting a new low for the price in the past seven months; the main continuous contracts of hot coil futures were at a minimum of 4,158 yuan/ton, the lowest since December 2020. It has fallen for six consecutive trading days. During the year, rebar and hot coil have fallen by more than 20% from their highs. Among them, half of the declines occurred in June. The spot market ofsteel has also entered a "pitfall". According to Lange Steel monitoring data, as of June 20, the national high-line average spot price, third-level rebar spot price, hot-rolled coil plate average spot price, cold-rolled coil plate average spot price, and medium-thick plate average spot price since June has generally fallen by about 10%.
As of the time of publication of the reporter on June 24, steel prices were still fluctuating at low levels, and the upward movement was obviously insufficient.
Wang Haijie said that at present, the inventory of steel billets in steel mills in Tangshan area has been at a historical high. After the recent sharp drop in steel prices, traders have also significantly reduced their purchases from steel mills. There are still concerns about the future market, which makes traders dare not replenish their inventory in large quantities. Those who are still getting goods are all in urgent need.
Many industry insiders told the Economic Observer reporter that the domestic steel market has formed a strong demand release expectation in the process of increasing the policy of stabilizing growth, but the impact of the epidemic and weak demand has caused a uproar in the steel market. In the first half of the year, the domestic steel market showed a "strong expectations" game of "weak reality", and weak demand is the main factor affecting steel prices.
Zhang Lei, director of Shanghai Zhuogang Chain Black Research Institute, said in an interview with the Economic Observer reporter that since the second quarter of this year, due to the impact of the epidemic, the actual supply and demand of steel has performed poorly, and market prices have been suppressed. Therefore, it is expected that after Shanghai resumes normalization, demand will be released in a recovery manner. However, from the actual situation, the problem of sluggish demand has not been resolved. In addition, the Federal Reserve's significant hike in rate suppresses inflation, and the influence of negative factors such as the entry of the high temperature and rainy season in the south has caused the collapse of market confidence and market prices have entered a rapid downward channel.
Pei Hongbin, assistant director of China-Thailand Futures Research Institute, analyzed that poor demand for steel and expected turnover are the core logic of this round of decline. First, the recovery of steel demand has basically failed after the epidemic. Second, the overall macroeconomic situation and downstream demand are facing great pressure. Although policy stimulus is constantly, due to the leading real estate land acquisition and sales, the investment intention of enterprises, downstream consumption, etc., it is difficult to increase, resulting in a rapid accumulation of steel inventory, forming a shift in macro expectations and an increase in the selling pressure of industrial spots.
Wang Haijie told reporters that in June and July, affected by the plum rain and high temperature, it is itself an off-season for steel consumption. This year, the Federal Reserve raised interest rates at , further suppressing steel prices. He said bluntly, "We will not take the initiative to get the goods for the time being. If we can sell, we will sell a little. If we can't sell, we will wait for the price to rebound."
In the first half of this year, weak steel demand is already a certain fact. Taking Beijing as an example, according to monitoring data of Lange Steel Cloud Business Platform, the total daily average shipment volume of 510 major companies in the Beijing building materials market from March to June decreased by 33.87%, 28.93%, 40.19% and 44.38% respectively compared with the same period last year; it showed that after a sudden deterioration in May, June was still downward.
In addition, in terms of output, the production release intensity of steel enterprises was still at a high level in early June. According to monitoring data of Lange Steel Cloud Business Platform, as of June 17, the blast furnace operating rate of 100 small and medium-sized steel enterprises nationwide was 81.9%, basically the same as the same period last year. According to the Lange Steel Research Center, the national crude steel daily production may remain at a level of around 3.15 million tons in June. Production may remain at a high level in June.
The supply is strong and the demand is weak. This year, the rate of social steel inventory reduction has slowed down significantly. According to monitoring data of Lange Steel Cloud Business Platform, as of June 17, the social inventory of steel in 29 key cities counted by Lange Steel Network was 14.508 million tons, an increase of 14.49% from the same period last year. The highest point this year has fallen by 12.59% so far, slowing by 23.23 percentage points from the same period last year.
A person from a steel mill in East China told the Economic Observer reporter that the inventory of steel billets in some areas has hit record highs, and the inventory pressure is mainly in the hands of steel mills and first-level traders. In recent years, steel mills have actively suppressed prices for shipments for the first time, which is also the main driving force for the decline in steel prices since April.
Concerns about production cuts under deep losses
Steel prices have been falling continuously, and the losses of steel mills are expanding rapidly.
According to the tracking data of Lange Steel Research Center, in early May this year, the profits of monitored steel varieties deteriorated rapidly (calculated based on the two-week inventory raw material cycle) and fell below the break-even line. In mid-May, the production losses of each ton of rebar, strip steel, , hot-rolled coils and cold-rolled coils exceeded 200 yuan/ton. Although the loss has narrowed since then, with the sharp drop in mid-to-late June, the gross profit of various varieties is still in a loss state, and the loss has increased.
Take the third-level rebar as an example. According to the spot cost on June 20, the loss per ton reached 212 yuan, an increase of 101 yuan from the loss on June 17. On June 23, due to the decline in iron ore and coke prices, the estimated profits of spot raw material costs have been repaired to a certain extent, and the loss has been reduced to around 100 yuan. However, the profits of raw material inventory in two weeks have been significantly reduced, and the loss has reached about 500 yuan. The last time such a loss occurred was in 2015.
The above-mentioned person from East China Steel Plant told reporters that in terms of length and short process, in terms of short process, due to the strong scrap steel price in the early stage, the short process steel plant has been below the loss line for more than one month, and the current loss of ton of steel is about 200 yuan. In terms of long-process steel mills, they have also entered the break-even line in June.Steel prices have fallen sharply recently, and the losses of long-process steel mills have intensified. The losses of regions and varieties have ranged from 200-400, resulting in cash flow losses, which is equivalent to the profit level of steel mills in 2015.
steel mills have entered serious losses, and the profits of traders in the middle links are not optimistic. Wang Haijie said, "Traders are also losing money. In addition to the upstream iron ore raw materials, there are also profits in the entire industrial chain, and steel mills and traders are both losing money."
Wang Haijie introduced that according to different market demand, the company's inventory cycle is generally half a month to one month. If the steel price drops sharply in the short term, traders will face the risk of loss. "For example, in early May, the company's goods received from steel mills, after this round of decline, coupled with poor demand, extended the shipment cycle, basically the existing inventory is in a loss."
ton of steel has suffered a serious loss in profits, which forces steel mills to take the initiative to reduce production.
It is worth noting that most steel mills have gone from small profits at the beginning of the month to large losses at present, which has also forced steel mills to gradually increase their efforts to reduce production. According to incomplete statistics, as of June 20, 22 steel mills in China have issued maintenance plans.
Pei Hongbin told reporters that because of the rapid short-term decline in steel prices and the relatively strong raw materials in the early stage, steel mills generally suffer serious losses, and many companies have already lost cash flow. For most steel mills, it is indeed time to have to reduce production.
Can steel mills get out of the quagmire by reducing production? Will the scope of production cuts continue to expand? The industry still has different opinions.
The person from the East China Steel Factory said that some blast furnaces will be repaired in advance in the near future. It can be seen that the market profit has a significant bottoming and rebounded, but the actual cost of molten iron is still digesting the inventory of raw fuel purchased at the early stage at a high price, and it will take time to lower the cost.
In Pei Hongbin's view, this round of production restrictions is a repair to steel mill production profits, supporting steel prices, but whether steel prices can increase depends on the support of raw material costs, and on whether downstream demand can be effectively increased. "From the perspective of raw materials, iron ore and coal coke have also seen a significant decline, but the absolute price of iron ore and coking coal is still at a high level, and there is still room for a decline in the future. Judging from the demand in the downstream of steel, there is no continuous and effective recovery in demand at present." Pei Hongbin said.
Lange Steel Research Center Director Wang Guoqing said in an interview with the Economic Observer reporter that at present, due to the increasing losses of steel manufacturers, some steel companies have significantly reduced production for maintenance, which will help alleviate the supply pressure under weak demand in the off-season and play a certain support for steel prices. However, there are many factors affecting the steel market at present, and the supply side, demand side, cost side, market mentality, and peripheral environment all have obvious effects on the market. Externally, the Fed's interest rate hike and the global interest rate hike have suppressed the commodity . Demand is still weak during the high-temperature and rainy season. The downward cost support for iron ore and coke has weakened, and market confidence is also obviously insufficient. The market will show a stable rebound after the weak bottoms out.
Zhang Lei has a different view on this. He analyzed that the main driving force for steel mills to reduce production comes from serious losses in profits of tonnes of steel, but in the process of this round of black series plunge, the decline in raw material prices greatly exceeded that of finished materials, which weakened the driving force for steel companies to reduce production. In addition, due to the requirements of maintaining growth, steel companies themselves are in a dilemma between reducing or not reducing. Therefore, the intensity of this round of production reduction will be weaker than market expectations, and this will provide relatively limited support for steel prices. Can the sluggish situation in
be reversed? "For me now, the pressure is not too great." Wang Haijie is now grateful that before this round of decline, when he saw that he had already "cannot sell" on the demand side, he reduced his inventory under normal circumstances to 40% to 50%. Later, during the decline, by adopting the price strategy that is favorable to the market price, he reduced his inventory to about 10% now.
Wang Haijie said that he did not have much confidence in the steel price trend in the second half of the year. He believes that as steel mills reduce production and demand release, steel prices may rebound in August and September, but if demand does not meet expectations, it will still fall.Based on expectations that steel prices are not optimistic in the second half of the year, Wang Haijie said that he will adopt the business strategy of "fast in and out, maintaining reasonable inventory."
Mr. Cui also told reporters, "When you lose money, you will face a decline in confidence, and the capital chain turnover is not good. Next, the company will strive to develop new customers and strengthen the stickiness of old customers. On the other hand, it will adopt the 'fast in and out' model to ensure the normal flow of the company." During the interview, the reporter learned that the industry is more cautiously optimistic or cautiously pessimistic about the steel price market in the second half of the year.
Zhang Lei believes that compared with the first half of the year, the core demand for construction steel is expected to improve. The relaxation of real estate purchase restrictions, the improvement of guiding demand, and the future development of infrastructure fields may reverse the overall downturn in the first half of the year. In terms of manufacturing, industries such as construction machinery and heavy trucks are expected to benefit from the improvement of the construction industry, while other industries such as automobiles and home appliances will also usher in a certain recovery period, so the market may show a volatile recovery pattern in the second half of the year. However, compared with the previous two years, it is difficult for the demand in real estate, automobile and other industries to reach the previous high level, so the probability of price turning from a plunge to a surge is not high. In terms of profits of
steel mills, he analyzed that according to the latest raw material prices, most steel companies in East China in China have turned from a significant loss in the previous two weeks to a small profit, and inland steel mills are still in a loss state. If the steel company's production cuts expand in the future, it will have a certain suppression on raw material demand, which is expected to continue to improve the profit level of steelmaking companies. In addition, judging from the crude steel production data in the past two years, domestic steel production has shown a shrinking trend year by year, while raw material supply has always been at a high level, which has certain support for the profit improvement of steel companies in the later period. It is expected that steel mill profits will recover to the range of 200-500 yuan/ton in the second half of the year.
Wang Guoqing believes that with the gradual weakening of the policy of stabilizing growth and the off-season effect, market demand will recover significantly. Steel production in the second half of the year will be a process of reduction compared with the first half of the year. The market supply and demand relationship will be significantly improved, and market prices are expected to fluctuate upward. At the same time, demand on the raw material side will weaken. Coupled with the implementation of the national supply-saving and price-stabilizing policy, raw material prices will return rationally, and the profit margin of steel companies will be significantly repaired compared with the first half of the year.
The above-mentioned person from East China steel mill said that after the steel price plummeted, the steel market showed signs of marginal improvement, and the output of steel mills under active maintenance has dropped significantly. On the one hand, the factory warehouse has accumulated and social inventory has been sold, and apparent consumption has rebounded. For the improvement of short-term demand, it can be understood as terminal demand procurement and part of speculative inventory. The sustainability of demand improvement needs to be continuously tracked in the later stage. Before the end of early July, expectations should not be too high. Overall, he believes that the third quarter will improve and demand will see a significant improvement in August.
Regarding the supply and demand situation and steel prices of steel in the second half of the year, Pei Hongbin believes that the overall attitude is still cautious and pessimistic. It is expected that steel prices will not soar with the current macro and industrial policies, as well as supply and demand situations. However, the peak steel season is gradually approaching in the late third quarter, and coupled with the industry's crude steel production restrictions and passive shutdowns and maintenance, the supply and demand contradiction is expected to ease, and there may be a phased rebound, with limited rebound space, and the overall situation is still in a downward trend.
