Industry dynamics

                      Industry dynamics

                      The price of construction steel keeps falling under the background of "oversupply"


                      Since July 2019, the domestic construction steel price has been "steeply declining" since then. So far, it has fallen for 40 consecutive days, and the price of threads has hit a new low in the year. This round of decline is mainly due to the sharp fall in raw material prices, the rapid rebound in steel inventories, and the sluggish end-to-end demand transactions, coupled with the expected fall in futures markets, which brought about by the four factors of sharp decline. As of August 10, the average price of grade 16 threaded steel in Jiangsu, Zhejiang and Shanghai markets was 3696.36 yuan/ton, and that of Grade 8 high-speed steel in Jiangsu, Zhejiang and Shanghai markets was 3930 yuan/ton, which fell by 7.80% and 7.09% respectively from the beginning of July, respectively, and reached a new low level since April 2018 and March 2019. The price range of threads in mainstream first-line factories is 3680-3710 yuan/ton, and that in second-and third-line factories is 3620-3670 yuan/ton. The price gap is further narrowed.

                      Raw Material: Domestic imported iron ore market prices began to decline significantly at the end of July, until 10 days, PB powder spot has dropped nearly 150 yuan/wet ton, falling back to the price level in late May. However, the price level is still on the high side, and the profits of steel mills continue to shrink substantially. As of August 10, the average price of 62% of the PB powder port boards in Australia was 749.44 yuan/wet ton, which was 16.60% lower than that at the end of July and 1.5% lower than that at the end of July. According to the price comparison chart of iron ore and threaded steel of Yichang Iron Mine Co., Ltd., the price fluctuation of raw ore is obvious, almost six times that of threaded iron ore. According to the traditional quotation, there is always a steel market saying that "ore falls 10% and threads shake three times", which means that the price of ore falls by one third of threads. However, the current market is mainly due to the rapid and excessive price rise in the previous period, which led to the "top-down" of mineral prices; secondly, the level of port inventory gradually "bottomed out" (up to 11.51 million tons on the 9th day, up by 185.3 million tons, down by 22.48% year-on-year), short-term profit and short-term price; thirdly, traders are active. Avoiding loss of price reduction and yielding profit by discounting goods; finally, due to environmental protection and production restrictions and increased routine maintenance of steel mills in off-season, ore demand contracted, dragging down prices. Therefore, in the past three months, the rise and fall of raw material prices of iron ore is not the main factor of the rise and fall of threads, but the influencing factor; and the near-term recovery of mineral prices is not likely, the market is still dominated by the decline.

                      Supply: As of August 9, the opening rate of 137 threaded steel mills in China was 79.67%, which was flat for four consecutive weeks, increasing by 3.60% year-on-year. The weekly output was 3.7069 million tons, the circumferential ratio decreased by 1.93%, and the annual increase was 14.87%. The opening rate of 92 wire rod mills in China was 74.56%, the circumferential ratio increased by 0.60%, and the year-on-year increase by 1.78%. The weekly output was 1.6326 million tons, and the circumferential ratio increased by 14.87%. 0.14%, an increase of 19.12%. The data show that construction steel factories have relatively sufficient production, strong market supply, and no obvious phenomenon of production cut-off, which has depressed prices.

                      Inventory: As of August 9, the inventory of threaded steel mills increased by 2.675 million tons, 157.2 million tons annually, 6 weeks in succession, 6.432 million tons in social inventory, 10.07 million tons annually, 10 weeks in succession; 6.942 million tons in wire rod mills, 53.4 million tons annually, 5 weeks in succession; 1.745 million tons in social inventory, 27.3 million tons annually annually. Ten thousand tons, up for nine weeks. In the off-season market in August, the overall turnover of construction steel market is poor and inventory is gradually piling up. On the other hand, it is difficult for traders to ship goods. The direct delivery resources of construction sites are also affected by weather, which hinders the delivery, resulting in increased financial pressure and reduced prices. So the overall negative steel price.

                      Demand: According to the PMI of iron and steel industry surveyed and released by the China Federation of Independent States Steel Logistics Professional Committee, it was 47.9% in July, down 0.3 percentage points from June. The sub-index shows that the new order index is 45.8%, which is 2.1 percentage points lower than that in June. It has been running in a contraction range for three consecutive months. Overall, domestic steel market demand is general, market mentality is not optimistic. At present, after the end of the rainy season, the South quickly enters the high temperature weather, which hinders the construction recovery progress downstream. In some regions, terminal demand has rebounded, but there is a big gap from the peak season performance. Therefore, the market demand for construction steel is sluggish for a short time, which is a drag on the price.

                      Futures: The main contract of threaded steel began to appear "ladder drop" at the beginning of July, and by the end of July has shown "waterfall fall fall" market. On the one hand, spot prices continue to fall, affecting the futures market; on the other hand, after the delivery of the former main contract, there is a price gap in the new contract, which leads to a decline; and finally, people on the market are generally short of the August market, the off-season effect of the steel market and insufficient support for raw material costs restrict its market. According to the basic difference chart of business associations, the basic difference of threads on August 9 is - 78.36. From the period of 2019-05-13 to 2019-08-09, the maximum and minimum basic difference of main threaded steel is 289.00 and the average value is - 116.00 and 33.38. Then the base difference is expected to shrink in the future. Therefore, there is still room for short-term forecast futures to fall.

                      In addition, from the spot K-line chart of the commercial society thread steel, the weekly K-line 3 has fallen continuously, and the 7-day average goes through the 30-day average, which shows the expectation that the thread will continue to fall in the future.

                      To sum up, the analysts of thread steel in business associations believe that the construction steel market is in the basic situation of "supply exceeds demand", and the price of raw materials has fallen sharply, the market terminal demand has slowed down significantly, the production and operation activities of iron and steel enterprises have declined, the inventory of finished products has continued to rise, and the purchasing activities of steel mills are also in a contraction state. State. Therefore, it is expected that the downward trend of oscillation will continue in the short term, and the market mentality and futures trend will continue to affect the spot price trend. Spot prices of threads are expected to fluctuate in the range of 3560-3670 yuan/ton in mid-August, and futures prices are expected to fluctuate in the range of 3460-3650 yuan/ton.

                      Liaocheng ritong steel pipe co.,ltd.
                      Liaocheng Ritong Steel Pipe CO.,LTD

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