When The Reduction Of Iron And Steel Output Is Going On: Keep Domestic Demand, Reduce Ore Price, Be Alert To Demand Contraction Beyond Expectation

      Since the second half of the year, taking advantage of the traditional off-season opportunity of the steel market, the steel production reduction and import and export tariff adjustment policies have been implemented one after another, and the industrial chain adjustment has been steadily promoted. Under the background of the sharp decrease in output, the steel price is generally stable, and the iron ore price, which has attracted much attention, continues to cool down.

When production reduction is in progress

In the second half of the year, the strong output reduction policy has achieved obvious results.

      On August 16, the data released by the National Bureau of statistics showed that the average daily production of crude steel in July was 2.8 million tons, a new low since April 2020, with a month on month decrease of 10.5%; The average daily output of pig iron was 2.35 million tons, down 6.9% month on month; The average daily output of steel was 3.581 million tons, down 11% month on month.

In the whole year, the daily decline of crude steel in July was the first year-on-year decline in the year, only slightly higher than the same period in 2019; It can be seen that under the pressure of production reduction policy, domestic steel production enterprises have significantly reduced the intensity of capacity release.

      Xu Xiangchun, chief information officer of iron and steel.com, pointed out that the high-frequency data of Mysteel in July showed a decline in output, which was expected by the market; However, in July, the average daily output of crude steel fell by more than 10% month on month, and the year-on-year decrease rate also reached 8.4%.

"To remove seasonal factors, the most important thing is to implement the policy of production reduction, which has achieved remarkable results." Xu Xiangchun said.

In the first half of this year, the domestic and foreign economic recovery and steel demand exceeded the market expectations. In addition, the overseas market demand was strong, and the domestic steel production increased greatly. In terms of policy, the Ministry of industry and information technology has repeatedly stated that it is determined to reduce crude steel production, so as to ensure a year-on-year drop in steel output in 2021.

From January to June, the domestic crude steel output accumulated 563 million tons, with a year-on-year increase of 11.8%. In the first half of the year, iron and steel production in many major provinces except Hebei Province achieved positive growth; In the second half of the year, the above production areas are facing greater pressure of production reduction.

Steel industry faces structural adjustment

Li Yongjun, chief economic analyst of China Iron and Steel Industry Association, pointed out at the recent general meeting of China Iron and Steel Association that domestic steel demand in recent two years was mainly driven by fixed asset investment and abnormal export growth of steel containing industrial products. As China's economy returns to normal, China's steel industry will also return to normal development.

"If the domestic iron and steel industry chain forms an export-oriented local small circulation system, it will not only make the domestic steel industry chain own production and sales highlight a certain imbalance, but also make the manufacturing industry and the domestic economy highlight a certain imbalance in the industrial structure." Li Yongjun said.

Since the end of last year, with the synchronous booming of steel production and demand, the price of iron ore, the main raw material of steel, has repeatedly broken the historical high value, and the steel price has also soared to a high level within the year. The domestic steel industry should guard against the risks brought by the rapid rise of commodity prices. Under the background of the dual carbon policy, it is also faced with the tasks of controlling production capacity, reducing output and low-carbon transformation.

Since the end of June, many iron and steel industry production restrictions have been announced, iron ore prices tend to be weak, while steel prices are rising in a short term. In order to maintain the stability of the steel market and enhance the guarantee ability of domestic steel resources, the Tariff Commission of the State Council readjusted the tariff of steel products on July 29 to provide guarantee for the reduction of steel production capacity and structural optimization in the second half of the year.

In the first seven months of this year, domestic iron ore imports also ended the growth momentum of the previous two years. According to the data of the General Administration of customs, from January to July this year, China imported 649 million tons of iron ore and its concentrate, a year-on-year decrease of 1.5%; In July, due to the reduction of domestic crude steel production, the import volume of iron ore continued to fall, with a year-on-year decrease of 21.4%.

Due to the high price of iron ore, the total import amount is still increasing. In the first seven months, domestic imports of iron ore and concentrate totaled 724.4 billion yuan, a year-on-year increase of 66.9%.

By the end of the afternoon of August 17, iron ore futures had fallen to 834 yuan / ton, equivalent to the price level in mid November 2020; Proctor's iron ore price index also fell to US $162.5/t, down 27% from the peak of US $222.3/t in mid July. At the same time, the futures and spot prices of rebar are hovering around 5300 yuan / ton, which is equivalent to the price level in late April.

Mysteel analysis points out that the average daily pig iron output has increased far less than that of crude steel since this year. From January to July, crude steel output increased by 56.16 million tons, while pig iron output increased by only 22.64 million tons. This means that most of the increased crude steel production is supported by scrap raw materials, which indicates that the utilization structure of iron and steel raw materials is showing positive changes, and the supply of scrap steel has increased more than expected, making up for the gap in pig iron production.

Xu Xiangchun pointed out that to improve the resource guarantee capacity of the iron and steel industry, in addition to strengthening the development of iron ore resources at home and abroad, it is also inseparable from promoting the full utilization of domestic scrap resources; At present, the change of the structure of raw steel in China indicates that there is a great potential for the utilization of domestic scrap.

Watch out for demand contraction beyond expectation

With the implementation of production reduction policy, the daily output of steel enterprises continued to decline; Due to the repeated epidemic situation, the domestic steel market is in a weak situation of supply and demand.

From the single ten day output data of crude steel of key medium and large-scale iron and steel enterprises, the momentum of production reduction in July has continued, and the daily crude steel production of large and medium-sized steel enterprises in the first ten days of August has been lower than the same period in 2019. According to the statistics of CISA, in the first ten days of August 2021, the average daily output of crude steel of key steel enterprises was 2.0439 million tons, with a decrease of 2.97% on a ten day basis and a decrease of 4.4% on a year-on-year basis.

Since August, due to the joint influence of timely adjustment of industrial policy, forward-looking monetary policy and periodic stock demand, the domestic steel market has shown a trend of first falling and then rising; At the same time, due to the rapid decline of iron ore prices, the profits of steel mills have been restored to a certain extent, and the overall enthusiasm of steel enterprises has been improved, but they are still facing the pressure of production restriction policy.

According to the estimation of Lange Iron and Steel Research Center, the national crude steel production may drop to about 2.7 million tons in August 2021, among which the daily output of key large and medium-sized iron and steel may drop to about 2.05 million tons.

With the end of the hot summer season and the arrival of September, the construction industry is changing from the off-season to the peak season, and the steel demand will usher in seasonal expansion; However, according to the data released by the Bureau of statistics, the situation is not very optimistic: infrastructure investment has fallen more than expected, new real estate construction also continues to weaken, and the expansion of steel demand in construction industry in peak season is weak.

Wang Jing of Lange Iron and Steel Research Center pointed out that in the short term, domestic and external demand has fallen and domestic demand is weak, the growth rate of manufacturing industry production is going down, and the expansion power of steel demand is not strong, and the situation among industries will continue to differentiate. The steel demand of construction machinery and other industries in the upstream of construction industry may continue to weaken, and the steel demand of high-tech manufacturing industry benefiting from industrial upgrading is expected to remain strong.

"After the epidemic, the abnormal growth of steel consumption is unsustainable. As economic growth returns to normal and faces downward pressure again, we need to pay attention to the risk of steel demand shrinking beyond expectations." Wang Jing said.