Steel industry dynamics: The recent phase of rising prices in the steel market may continue.
From April 5 to April 8, the national steel market showed an upward trend, with most regions experiencing price increases for construction steel. The price increases varied significantly across different areas, with the price of construction steel in Beijing rising by around 280 yuan/ton, while in places like Shanghai and Guangzhou, the increase was around 80 to 90 yuan/ton.
2019-02-23
From April 5 to April 8, the national steel market showed an upward trend, with most regions experiencing price increases for construction steel. The price increase varied significantly across different areas, with Beijing's construction steel prices rising by around 280 yuan/ton, while places like Shanghai and Guangzhou saw increases of 80 to 90 yuan/ton. The prices of plates and coils generally trended stronger, with increases of 110 to 140 yuan/ton, and there were also significant differences in price increases for different varieties and regions of steel. The prices of profiles mainly increased, with Tangshan's profile prices generally rising by 70 to 80 yuan/ton as of April 8. Recently, the strong state of steel billets, which are easy to rise but hard to fall, has provided strong support to the market. Additionally, the traditional construction season in April has begun, and the mentality of users to "buy on the rise and not on the fall" has led to increased purchasing activity. Furthermore, the impact of the Tangshan World Horticultural Exposition on steel production has been hyped in advance, supporting the upward trend in steel prices. Considering all these factors, both positively and negatively, they are conducive to stabilizing the current upward trend, and it is expected that the short-term phase of rising steel prices will continue.
Overall, the serious oversupply of steel will not be substantially alleviated in the short term. Currently, steel mills in various regions that have limited or stopped production are gradually resuming operations. In the context of market demand not significantly increasing, it is impossible for the steel market to sustain a large-scale rise, and we should be wary of the risk of price declines, analyzing the market's operational trends rationally from the following aspects.
Economic growth stabilizes, driving demand for steel. The China Federation of Logistics and Purchasing and the National Bureau of Statistics Service Industry Survey Center released the Purchasing Managers' Index (PMI) for China's manufacturing sector in March 2016, which was 50.2%, an increase of 1.2% from February, returning to the expansion zone.
Last week, the average price of spot steel significantly increased compared to the previous week. Monitoring data shows that as of April 8, the average price of Φ25mm grade III rebar in 10 major cities in China was 2515 yuan/ton, an increase of 163 yuan/ton compared to the same period last week; the average price of Φ6.5mm HPB300 high line in 10 major cities was 2614 yuan/ton, an increase of 124 yuan/ton compared to the same period last week; the average price of 5.5mm hot-rolled coils in 10 major cities was 2666 yuan/ton, an increase of 142 yuan/ton compared to the same period last week; the average price of 1.0mm cold-rolled coils in 10 major cities was 3202 yuan/ton, an increase of 63 yuan/ton compared to the same period last week; the price of 20mm medium plates in 10 major cities was 2625 yuan/ton, an increase of 77 yuan/ton compared to the same period last week.
The market price of iron ore has rebounded, strengthening the support for future steel prices. In March, the iron ore market experienced fluctuations upward. Monitoring data shows that on March 31, the market average price of 66% grade dry basis iron concentrate powder in the Tangshan area was 530 yuan/ton, an increase of 80 yuan/ton from the end of February, a rise of 17.8%; for imported iron ore, the price of 61.5% grade powder from Australia at the Rizhao Port market at the end of March was 400 yuan/ton, an increase of 45 yuan/ton from the end of February, a rise of 12.7%.
The national social inventory of steel decreased week-on-week. Monitoring data shows that as of the week of April 8, 2016, the social inventory of steel in 29 key cities across the country was 9.9884 million tons, a decrease of 258,900 tons from the previous week, down 2.53%. The week-on-week decrease in social inventory of steel is beneficial for supporting steel market prices.
The speed of steel companies resuming production has accelerated, and supply pressure may increase in the future. Due to the significant rise in steel prices in March, previously loss-making steel companies are gradually becoming profitable, with the marginal profit of different steel varieties ranging between 300 yuan/ton and 600 yuan/ton. The increase in profits for steel mills has stimulated their enthusiasm for resuming production. As of last weekend, based on volume, the operating rate of blast furnaces in 100 small and medium-sized steel enterprises was 86.27%, an increase of 1.31% from the previous week.
Signs of economic recovery in the domestic market are gradually becoming evident, with new projects continuously increasing. However, under the backdrop of overcapacity in the steel industry, uncertainty risks still exist. In the long run, the price level of steel in China in 2016 will fluctuate around the median cost line of steel enterprises.
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