Source: CFC Metals Research
summary
Strategy for this issue:
Iron ore: 2301 The contract fell below the support level, and the short operation was dominant.
Steel: 2301 The contract fell below the support level, and the short operation was dominant.
Steel: October's peak demand season is difficult to find, and market sentiment is pessimistic. Overseas geopolitical risks are difficult to settle, the risk of recession in Europe is gradually approaching, the epidemic in many places in China continues to disrupt the normal production and demand realization process, and recent important policy meetings are not as favorable as market expectations. Overall, in the case of less than expected data, concerns about crude steel pressure reduction have risen again, and market sentiment is pessimistic. The thread price falling below 3600 is conducive to the supply side to compress production, and the rapid release of pessimism is more conducive to the subsequent price increase. In this year's "Silver Ten", speculative demand has been excessively suppressed, and demand may rebound in stages. Without macro stimulus, production will fall less than expected and will fall again after the rebound. Recently, the profitability of steel mills has continued to deteriorate, the expectation of production reduction and production restriction is strong, the space for production to continue to rise is limited, the downstream demand side data is insufficient, and steel prices continue to run under pressure.
Iron ore: October iron ore prices are significantly affected by the negative feedback at the finished material end. The recent performance of finished material data is relatively flat, and the superimposed crude steel pressure reduction wind has risen again, and the market sentiment is pessimistic. In October, with the falsification of demand season expectations and the decline in molten iron production data, the price of finished materials tended to decline, and iron ore prices lacked support and then fluctuated downward. In general, the current downstream demand has not improved significantly, the supply side in the fourth quarter is loose, the demand side is expected to continue to fall, iron ore prices are under obvious pressure, and the recent focus is on observing the impact of steel mill winter storage and production restrictions on the market.
Uncertainties:
Epidemic risk, geopolitical risk, degree of production reduction
One
screw thread
1.1 Spot Market Performance for the Month:
1.2 Thread supply: The output is at the highest level in the year, and it is running in shock
In October, thread production was at the highest level of the year, and some steel mills were affected by the epidemic disturbance and production restrictions. Mysteel data shows that thread production in October decreased month-on-month, as of October 29, the weekly output of threads was 3.0502 million tons, the average monthly weekly output was 2.99705 million tons / week, and the average monthly weekly output in October last year was 2.7626 million tons / week, an increase of 234,450 tons / week year-on-year, an increase of 8.49%, and the output in October decreased by 70,800 tons / week, a decrease of 2.31%.
From a process point of view, the output of the long process decreased slightly in October, and the output of the short process was under obvious pressure. As of October 29, the weekly output of long process was 2.7755 million tons, an increase of 1.47% month-on-month, and the average monthly weekly output in October was 2.7313 million tons/week, down 44,700 tons/week, or 1.61%, and increased by 264,100 tons/week, or 10.70% year-on-year. In October, steel mills did not significantly limit production and reduce production, and the long-process output and operating rate were at the highest level in the year. The weekly output of short process was 274,700 tons, an increase of 7.10% month-on-month, and the average monthly weekly output in September was 265,800 tons/week, down 24,100 tons/week, or 8.31%, and 29,600 tons/week, or 10.03%, year-on-year. October's short-process output fell month-on-month compared with September, and the operating rate continued to be at a low level, mainly due to the difficulty of boosting downstream demand, coupled with the deterioration of the profitability of most steel mills, and the lack of willingness of steel mills to expand production. In addition, short-process profits are on the verge of profit and loss.
Steel prices continued to fall this week, raw material and finished material prices fell, finished material prices fell more than raw materials, and tons of steel profits fell. From the perspective of steel mill production status, the profit of the long process continued to decline in October, and the profit of the short process improved, and the current long process profit remained at about -100 to 0 months / ton, and the short process profit was around the breakeven line to 100 yuan / ton.
1.3 Thread watch needs: the peak demand season is difficult to find, and the market sentiment is pessimistic
In terms of apparent consumption, October demand was 3.0794 million tons, down 150,500 tons month-on-month. The October table demand data performance was relatively flat, the market sentiment was pessimistic, and the transaction activity was lower than in September. October thread demand can be summarized as "generally flat, lower than expected", currently in the traditional peak demand season, but the release of terminal demand is not as strong as expected, the 3.6 million tons of watch demand at the end of September was only short-lived, October did not undertake this optimism.
The average daily consumption of building materials in October was 157,800 tons, down 23,200 tons, or 12.37%, and 9.46% year-on-year. On high-frequency data, 237 traders traded an average of 149,600 tons this week, a decrease of 07,100 tons month-on-month. This week's building materials trading volume is low, on the one hand, the actual downstream demand is weak, on the other hand, traders are reluctant to sell after the recent decline in building materials. With the colder weather and the seasonal decline in construction demand, it will be difficult to sustain the consumption of building materials in November without favorable policy stimulus.
1.4 Thread inventory: the destocking situation continues, and the inventory structure is healthy
As of October 29, the total thread inventory was 6.1958 million tons, down 329,200 tons from 6.525 million tons in September. In October, the supply and demand of threads both declined, and the overall performance was destocking. October continued the trend of destocking in September, and the warehouses of social warehouses and factories were at a low level, and the inventory structure was healthy. At present, the small warehouse during the National Day period has been consumed, and the heating season production limit and crude steel pressure reduction policy may be introduced in the future, and the thread inventory may continue to go down in November.
Two
Hot roll
2.1 Hot coil supply and demand: production rebounded in stages, and demand margin improved
Mysteel weekly data shows that as of October 29, the weekly production of hot coils was 3.1185 million tons. The output of hot coils rebounded in a phased manner in October, with an average monthly weekly output of 3.1157 million tons, compared with 2.9266 million tons/week in October last year, an increase of 189,100 tons/week, or 6.46%. The average monthly weekly output in September this year was 3.0618 million tons, and the output in October increased by 53,900 tons/week, or 1.76%, from the previous month. The output of hot coils continued to rise in October, slightly exceeding market expectations, and the output peaked and fell at the end of the month.
As of October 29, 3,213,700 tons of hot roll tables were needed. The weekly average of hot coils in October was 3.0699 million tons, down 44,100 tons, or 1.41%, from 3.1139 million tons in September, and 100,400 tons, or 3.38%, from 2.9695 million tons in October last year. The demand for hot coils in October is relatively flat, and the current weekly table demand is close to the level of 2018, but the overall trend of the black market is downward recently, and the board is difficult to support, and the demand for hot coils in November will be volatile to the downside.
2.2 Hot coil inventory: In October, the overall warehouse was strong, and the factory warehouse was at a low level
The hot roll first bases the library and then goes to the library in October, and the overall performance is the base library. As of October 29, the total inventory of hot coils was 3.3051 million tons, compared with 183,200 tons in September, including 37,100 tons to 839,700 tons of factory warehouses and 146,100 tons to 2.4654 million tons of social warehouses. The total hot coil inventory is currently close to the 2018 level, and November may be slowly downward due to seasonal factors.
2.3 Steel Summary:
On the macro front, overseas geopolitical risks were difficult to settle in October, the risk of recession in Europe was gradually approaching, the epidemic in many places in China continued to disrupt the normal production and demand realization process, and the recent important policy meetings were not as favorable as market expectations, and market sentiment turned pessimistic. The executive meeting of the State Council deployed a package of policies and successive measures to continue to implement a stable economy, strive to promote the economy in the fourth quarter to be better than the third quarter, and maintain economic operation in a reasonable range. The meeting deployed to accelerate the release of the effect of the policy of expanding consumption, and support the demand for rigid and improved housing due to urban policies; It is required to thoroughly implement the application and refund of incremental tax credits in the manufacturing industry to support the rescue and development of enterprises. The recent strengthening of the US dollar index, the depreciation of the yuan and geopolitical turmoil have also put some pressure on the steel market.
On the supply side, thread production fluctuated at a high level during the year in October, and some steel mills were affected by the epidemic disturbance and production restrictions, and the output of hot coils rebounded in stages, slightly exceeding market expectations, and output peaked at the end of the month. Crude steel output in October may reach 87 million, an increase of 21.54% compared with last year's 71.584 million tons; the cumulative crude steel output from January to October is 868 million tons, only 9.2 million tons less than last year. This year's crude steel compression reduction target has not been clear, and now that crude steel production is high, we must be vigilant about policy changes in the supply side in the next two months.
On the demand side, the release of terminal demand in October was not as strong as expected, and the demand side data was insufficient. Due to the relative firmness of costs and the pressure and shock of steel prices, the profits of steel mills have contracted significantly. From the perspective of steel mill production status, the profit of North China Long Process is currently about -150 yuan / ton; The short process benefited from the sharp decline in scrap and the profitability was relatively better. The current profit level has suppressed the release of steel mill capacity, and there has been maintenance behavior at Shanxi steel mill near the end of the month. Nationwide, even without administrative tasks, steel production will show a high level of decline in November.
In terms of inventory, steel products generally showed a destocking trend in October, and the warehouses of social warehouses and factories were at a low level, and the inventory structure was relatively healthy. Steel mill profits have not improved, and the low-inventory business model continues. The thread is currently consumed during the National Day period, and the subsequent heating season production limit and crude steel pressure reduction policy may be introduced, and the thread inventory may continue to go in November, and the hot coil will first base the warehouse and then go to the warehouse in October, the overall performance is the base warehouse, and the total inventory level is close to 2018.
Overall, in the case of less than expected data, concerns about crude steel pressure reduction have risen again, and market sentiment is pessimistic. The thread price falling below 3600 is conducive to the supply side to compress production, and the rapid release of pessimism is more conducive to the subsequent price increase. In this year's "Silver Ten", speculative demand has been excessively suppressed, and demand may rebound in stages. Without macro stimulus, production will fall less than expected and will fall again after the rebound. Recently, the profitability of steel mills has continued to deteriorate, the expectation of production reduction and production restriction is strong, the space for production to continue to rise is limited, the downstream demand side data is insufficient, and steel prices continue to run under pressure.
Uncertainties: when demand will improve, the extent of production reduction, overseas risks
III Iron ore
The price of iron ore in October was significantly affected by the negative feedback at the finished end. The recent performance of finished material data is relatively flat, and the superimposed crude steel pressure reduction wind has risen again, and the market sentiment is pessimistic. In October, with the falsification of demand season expectations and the decline in molten iron production data, the price of finished materials tended to decline, and iron ore prices lacked support and then fluctuated downward. At present, the price of the main iron ore contract has fallen below the 630 mark, and the outer market has fallen below the $80 mark. The recent strengthening of the US dollar index and the continued downward revision of scrap prices have also put some pressure on iron ore prices.
Analyze the fundamentals of iron ore. On the supply side, global iron ore shipments in October fell slightly from the previous month, and the arrival volume of iron ore in Hong Kong in 45 Hong Kong fell slightly from the previous month; On the demand side, the willingness to expand production in October under the low profitability of steel mills was insufficient, and some steel mills limited production and stopped production, the high level of molten iron production fell, and iron ore demand declined; On the inventory side, this month's iron ore port inventory and 247 steel enterprises import inventory showed a phased destocking trend, steel mills destocked more, the recent steel mill loss situation continued to deteriorate, downstream demand is flat, steel mills will continue to maintain a low raw material inventory strategy. It is expected that the iron ore supply side will be loose in November, demand will continue to fall, port inventories will rise, and steel mill iron ore import inventories will remain low.
In general, the current downstream demand has not improved significantly, the supply side in the fourth quarter is loose, the demand side is expected to continue to fall, iron ore prices are under obvious pressure, and the recent focus is on the impact of steel mill winter storage and production restrictions on the market.
3.1 Spot Price
3.2 Iron ore supply and demand: global shipments fell slightly, and molten iron production declined
On the supply side, according to Mysteel data, global iron ore shipments fell slightly in October from the previous month, with shipments falling by 3.176 million tons month-on-month to 118 million tons. Among them, the shipment volume of Australian ore in the current period was 18.173 million tons, an increase of 246,000 tons month-on-month, and the total shipment volume of this month was 72.922 million tons; the shipment volume of iron ore in Brazil was 6.942 million tons in the current period, an increase of 150,000 tons month-on-month, with a total shipment of 27.573 million tons this month; and the non-mainstream shipment of 17.618 million tons this month, a decrease of 182,000 tons month-on-month. From January to October 2022, the global iron ore shipment volume totaled 1.23 billion tons, a year-on-year decrease of 9.16%.
Global shipments fell slightly in October, major overseas economies were in a recession cycle, and domestic steel demand was difficult to boost. China's 45 Hong Kong iron ore arrivals in October fell slightly from the previous month. The total arrival of China's 45 ports in October was 94.766 million tons, an increase of 7.463 million tons month-on-month. From January to October 2022, the arrival of iron ore in China's 45 ports totaled 930 million tons, a year-on-year decrease of 78.288 million tons, or 7.77%.
On the demand side, the willingness to expand production in October under the low profitability of steel mills was insufficient, and some steel mills limited production and stopped production, the high level of molten iron production fell, and iron ore demand declined. According to Mysteel data, the average daily molten iron output of 247 sample steel mills has fallen back to a high level in the past two weeks, and as of October 29, the average daily molten iron output was 2.3638 million tons, an average of 2.3863 million tons per month, an increase of 18,000 tons, or 0.08%, and 11.46% year-on-year. The blast furnace operating rate of 247 steel mills in this period was 81.48%, down 0.57% from the previous month, and the operating rate fell in stages. The profitability of steel mills in the current period was 27.71%, down 10.82% from the previous month. In October, iron ore demand is difficult to boost, molten iron production fell in the middle and late half of the month, November may usher in the heating season production restrictions, most steel mills are also in a state of continuous loss, it is expected that November molten iron production will be slow and continuous downward.
In terms of inventory, this month's iron ore port inventory and 247 steel enterprises' import inventory showed a phased destocking trend, and steel mills destocked more. As of October 29, Mysteel counted a total of 129.927 million tons of port inventory in 45 ports, 829,400 tons from September destocking. There was no disturbance from typhoons and other weather factors this month, the overall trend of port evacuation volume rebounded, and port inventories were slightly destocked. The daily consumption of imported mines of the current sample steel mills has decreased slightly recently, to 2.9285 million tons this week, down 15,100 tons month-on-month, and inventory consumption ratio is 32.14, down 2.38 days from the end of last month. Recently, the loss situation of steel mills has continued to deteriorate, downstream demand is flat, and steel mills will continue to maintain a low raw material inventory strategy.
3.3 Iron scrap difference
According to our calculation model, as of October 29, the difference between the cost of molten iron and scrap steel was 85.8 yuan / ton, and it is currently cost-effective to use iron ore to make steel with scrap steel, and the price of iron ore has certain support.
3.4 High and low price difference: high price boost
This article originated from the financial community