summary
Supply: In the current situation of the decline in charge materials and the immediate profit of steel mills returning to positive, the expectation of steel mills resuming production has gradually fermented. What can be expected is the marginal recovery of short-process supply, and the slowdown in the slope of the decline of molten iron. According to the extreme situation, the short process thread recovered to the highest point of this year more than 400,000 tons, the long process maintained the current level, the thread can still achieve about 500,000 tons / week of destocking range. Under the judgment of the phased bottoming of the spot price of the charge, the continuation of the off-season destocking process will continue to support the price.
Demand: The situation of real estate dragging down the overall terminal demand is difficult to improve in the short term, the actual demand is still in a state of grinding, and the market's expectations for weak medium- and long-term demand are also more consistent, and the Politburo meeting at the end of the month and the Fed interest rate meeting or the key to changing the market's phased expectations. Microscopically, unless the epidemic spreads again, the current demand level of 3 million tons / week can basically be considered as the bottom area of demand in the third quarter, but the seasonal rebound in demand in August is not large, and the obvious improvement mainly occurred in September, and it has not yet reached the time point when the demand is significantly repaired month-on-month.
Inventory: The off-season destocking of finished timber is an important premise for the disk to do more, but if you want to achieve the continuous destocking of inventory before the peak season, you cannot give steel mills a long period of considerable profits to induce large-scale resumption of production. In other words, the weakness of demand in the off-season still limits the upper limit of what molten iron can recover, and it is difficult for steel mills to significantly expand their disk profits in the process, and the rise in steel prices is more manifested in cost pushes and shrinks profits. On the other hand, the resumption of simple electric furnaces will not change the trend of destocking, and will only affect the slope of destocking, but if the blast furnace has a large-scale resumption of production in the off-season, it may lay a new round of decline in the case of lower demand recovery than expected in the later period.
Valuation: As of the close of trading on July 25, the thread 10 contract is basically flat hangzhou spot price. From the cost point of view, with the sharp decline in charge prices, the immediate cost of the long process in East China has been reduced to near 3700 yuan / ton, the cost of electric furnace level is about 3850 yuan / ton, and the 10 contract fluctuates near the cost of short-term process electricity level, in view of the month-on-month increase in demand for scrap steel under low inventory, there is room for further upward movement in the short term along the valuation range. In summary, we believe that the thread 10 contract is currently neutral in disk valuation.
Strategy suggestion: In general, in the off-season destocking, and the year-on-year decline in finished timber inventory, the return of finished timber profits, the low absolute price of charge spot, and the repair of the basis of the charge plate surface can basically be considered as the end of the stage of negative feedback. The absolute low level of finished timber inventory, combined with the micro stage supply and demand gap, will lead to a further decline in iron production began to narrow, and the decline in blast furnace costs will basically end the drag on the price, and even turn into a phased support for the price of finished timber. Before the off-season destocking trend has not changed, the price of finished timber is still driven by the rise, but the supply recovery brought about by the resumption of production is bound to cause a slowdown in the slope of destocking, and in the scenario of mainly relying on supply to reduce destocking, it is also difficult for the disk surface to give a considerable profit margin to induce large-scale resumption of production. Only when the absolute amount of demand goes up a step, open the space for the repair of molten iron production, there is a basis for the positive feedback of cost and steel prices, and the probability of seeing the obvious increase in demand in August is not high, the price increase of this round is treated with a phased rebound, and the market of thread 10 contracts above 4000 yuan / ton is recommended to participate cautiously.
body
01 The spot price of the charge material fell to cash in, and the cost of the blast furnace bottomed out in stages
With the continuous expansion of the loss area of steel mills, the pressure reduction of crude steel has also been fully rolled out from electric furnaces to blast furnaces, from scrap to molten iron. The negative feedback price pressure caused by the tightening of overseas liquidity and the weak domestic terminal demand has been transmitted from bottom to top along the black industry chain, and the various varieties of black have fallen by 24%-40% month-on-month compared with the high point in April this year.
Compared with the price lows hit by the negative feedback in November last year, the current spot prices of threads, hot coils, scrap and coke have fallen below the previous low; The upstream coking coal and iron ore are just one step away from last year's lows. If you look at the intraday pricing in mid-July, the spot low in November last year has also been broken.
The sharp drop in the spot price of charge materials has given up profit margins for long and short processes in steel mills. Although the profit ratio of 247 steel mills is only 10% from a static point of view, and the loss of long-process snail and coil static inventory in North China is also about 400-500, the immediate profits of blast furnaces and electric furnaces in East China have returned to positive. The charge material of the 09 contract was driven by the destocking of finished timber and the resumption of production by profit-led steel mills, and the basis of the 09 contract began to be repaired, and the basic repair was completed.
The repair of long-process profits and the basis repair of the near-month charge plate surface can be regarded as a signal that the cash price pressure of the charge material has been released in stages. From the perspective of affecting the price of finished timber, the absolute low level of inventory, with the micro stage supply and demand gap, the decline in the cost of blast furnaces has basically ended the drag on the price, and even turned into a phased support for the price of finished timber.
02 Profit + expectation dominates supply repair, focusing on the sensitivity of production to profits
According to the survey statistics of the Steel Federation in late July, since June 15, there are 69 blast furnaces in the national sample enterprises, with a cumulative volume of 83646m³, and the daily output of molten iron has decreased by 233,200 tons; a total of 25 electric furnaces and crude steel have decreased by 71,100 tons; a total of 48 rolling lines have been inspected and the daily output of finished products has been affected by 143,100 tons. Iron elements have further deepened with the expansion of the loss range, and the production of 247 molten iron in the fourth week of July fell to 2.19 million tons, down 70,000 tons month-on-month, although it is still some distance from the lowest 1.99 million tons in early December last year, but the slope of the decline is already faster than the level of last July.
In the current situation of the decline in charge materials and the immediate profit of steel mills returning to positive, the expectation of steel mills resuming production is gradually fermenting, but on the road to resuming production, the long and short processes will encounter different obstacles.
For short processes, due to the nature of private enterprises and the low cost of start-and-stop work, the pace of resumption of production in short processes is faster than that of long processes. The start of the independent electric arc furnace has rebounded for two consecutive weeks, and while the long process thread is still being reduced, the short process thread has begun to contribute to the marginal increase. However, in the current low inventory of the whole industry chain of scrap steel, and the previous price decline is large, the resumption of work of the electric furnace will cause a rebound in the price of scrap and thus erode the profits of the electric furnace, and the space for further resumption of production may also be compressed.
For long processes, the inertia of molten iron production is greater. At present, the static profit of steel mills is still deep, and the pessimistic expectations of steel mills for forward demand are difficult to change in a short period of time. In other words, even if the profits of the long process recover, under the pressure of the pessimistic expectations of long-term demand, the elasticity of production relative to profits may be blunted. Profit levels near the break-even line may be difficult to stimulate a higher slope of molten iron climbing.
Overall, at the current level of profits, it is foreseeable to see a marginal pick-up in short-process supply and a slowdown in the slope of the decline in molten iron. According to the extreme situation, the short process thread recovered to the highest point of this year more than 400,000 tons, the long process maintained the current level, the thread can still achieve about 500,000 tons / week of destocking range. Under the judgment of the phased bottoming of the spot price of the charge, the continuation of the off-season destocking process will continue to support the price.
03 The decline in the transaction of commercial housing has slowed down, and the demand is grinding to the bottom and waiting for a breakthrough
At the mesoscopic demand level, the slope of the month-on-month decline in the transaction area of commercial housing has slowed down, and the overall pattern of the first line is better than the second line is better than the third line, and due to the base, the year-on-year decline has also narrowed compared with the beginning of July. Specifically, the transaction area of commercial housing in the first-line, second-line, third-tier and 46-city commercial housing was 8.7%, -31.7%, -32.5% and -26.3% respectively year-on-year. On the other hand, after the relevant departments expressed their position on the "suspension of loans" issue, the transaction situation of second-hand houses has improved marginally, and the transaction area of second-hand houses after excluding Chengdu has dropped by about 4.6% year-on-year.
Judging from the indicators of front-end transactions, except for first-tier cities, there are basically no obvious signs of upward movement from the previous quarter. The situation of real estate dragging down the overall demand of black terminals is difficult to improve significantly in the short term.
The actual demand is still in a state of grinding bottom, and the market's current expectations for weak medium- and long-term demand are more consistent, and the Politburo meeting and the Fed interest rate meeting at the end of the month may be the key to changing the market's phased expectations.
At the micro level, thread apparent demand in the fourth week of July rebounded by 65,000 tons to 3,047,000 tons month-on-month, and the overall level was still hovering around the level of 3 million tons in the off-season, with a year-on-year decline of about 13%. Comparing the performance of cement and concrete horizontally, cement shipments rebounded by 1.4% month-on-month, and concrete capacity utilization rates fell slightly by 0.13% month-on-month, both of which were close to the same period last year's off-season level.
Microscopically, unless the epidemic spreads again, the current demand level of 3 million tons / week can basically be considered as the bottom area of demand in the third quarter, but the seasonal rebound in demand in August is not large, and the obvious improvement mainly occurred in September, and it has not yet reached the time point when the demand is significantly repaired month-on-month.
04 The resumption of production progress game reduces the range of the library, and it is difficult to have room for expansion of profits
Statically, the thread factory inventory was 2.818 million tons, down 300,000 tons month-on-month, down 303,000 tons (-9.6%) year-on-year; thread social inventory was 6.827 million tons, down 445,000 tons month-on-month, down 1.411 million tons (-12%) year-on-year; total inventory was 9.644 million tons, down 744,000 tons month-on-month, down 1.711 million tons (-15%) year-on-year. Not only threads, hot coils and five major timber caliber inventories also showed a downward trend year-on-year.
The off-season destocking of finished timber is an important premise for the disk to do more, but if you want to achieve the continuous destocking of inventory before the peak season, you cannot give steel mills a long-term considerable profit to induce large-scale resumption of production. In other words, the weakness of demand in the off-season still limits the upper limit of the molten iron that can be recovered, and in the process, it is difficult for steel mills to significantly expand their disk profits, and the rise in steel prices is more manifested in the cost pushing up and shrinking profits.
On the other hand, according to our above estimates, the resumption of production of simple electric furnaces will not change the trend of destocking, and will only affect the slope of destocking, but if the blast furnace has a large-scale resumption of production in the off-season, it may lay a new round of hidden dangers in the case of lower than expected demand recovery in the later period.
05 The disk valuation is neutral, and there is no trend reversal drive in the short term
As of the close of trading on July 25, the thread 10 contract is basically flat water Hangzhou spot price. From the cost point of view, with the sharp decline in the price of charge, the immediate cost of the long process in East China has been reduced to near 3700 yuan / ton, and the cost of electric furnace level is about 3850 yuan / ton. Long and short process spot currently has operating profits, 10 contracts fluctuate around the cost of short process level, given that scrap is facing a month-on-month increase in demand under low inventory, there is room for further upward movement in the short term along the valuation range. In summary, we believe that the thread 10 contract is currently neutral in disk valuation.
From the perspective of the price difference between the thread 10-01 contracts, after the market turned pessimistic about the demand for the far month, the micro-level benefit of the short-term off-season destocking and the peak season demand replenishment has become the main driver of the expansion of the 10-01 contract spread.
In general, in the off-season destocking, and the year-on-year decline in finished timber inventory, the return of finished timber profits, the low absolute price of charge spot, and the repair of the basis of the charge plate surface can basically be considered as the end of the stage of negative feedback. The absolute low level of finished timber inventory, combined with the micro stage supply and demand gap, will lead to a further decline in iron production began to narrow, and the decline in blast furnace costs will basically end the drag on the price, and even turn into a phased support for the price of finished timber. Before the off-season destocking trend has not changed, the price of finished timber is still driven by the rise, but the supply recovery brought about by the resumption of production is bound to cause a slowdown in the slope of destocking, and in the scenario of mainly relying on supply to reduce destocking, it is also difficult for the disk surface to give a considerable profit margin to induce large-scale resumption of production. Only when the absolute amount of demand goes up a step, open the space for the repair of molten iron production, there is a basis for the positive feedback of cost and steel prices, and the probability of seeing the obvious increase in demand in August is not high, the price increase of this round is treated with a phased rebound, and the market of thread 10 contracts above 4000 yuan / ton is recommended to participate cautiously.
This article originated from Shenyin Wanguo Futures