Three major contradictions in the steel market downturn

Why are steel prices falling and steel output high? Why are steel companies losing profits and expanding steel production capacity? Why are steel mills hard-pressed and mine prices are still tough? The three major contradictions behind this have determined that it is difficult for the domestic steel market downturn to ease in the short term. Xiao Bian takes you to explore what kind of contradiction is behind this.

The most prominent is the contradiction between low steel prices and high output. In the past, this volume-price relationship still had some room for adjustment. Some analysts compared the data: from April to July 2010, steel prices fell by about 15%, production lagged behind by 3 months from July, and daily average crude steel decreased from the highest 1.84 million tons to 1.6 million tons; 2011 From August to February of this year, steel prices also fell by about 15%, and output fell from the highest average daily volume of 1.99 million tons to 1.66 million tons in September last year. Since then, as of July 19 of this year, the national average price of rebar (3750, -86.00, -2.24%) has fallen by 12% compared with the April high, but the decline in output has not yet emerged, and from the current situation To infer that the timing of large-scale production adjustments has been delayed.

The second contradiction is that steel companies have made a weak profit, while their production capacity has expanded. According to the latest data from China Steel Association, in the first five months of this year, the profits of 80 key national large and medium-sized steel companies fell by more than 94% year-on-year, and the sales margin was only 0.17%. Even in the first two years, the sales profitability of large and medium-sized steel companies was only 2.91% and 2.4%. However, in this case, the pace of expansion of steel production capacity still can not stop. According to the information compiled by “My Steel”, this year, there are also steel mills with new blast furnaces put into operation. With high production capacity and a weak market, the space for the steel industry to rely on production adjustment to ease the contradiction between supply and demand is getting smaller and smaller.

The contradiction between steel prices and ore prices is a long-term accumulation of contradictions. Compared to the “deep water” of iron and steel companies, the upstream iron ore industry is still “a very moist day”. In the first half of this year, the import volume of iron ore in China increased by 9.7% year-on-year; the domestic production of primary ore increased by more than 16% year-on-year. From the perspective of the price relationship, according to the more normal situation, the fall in iron ore prices in the falling market is much larger than steel prices, and the decline is about 1.5 times that of steel prices. However, compared with the highs of this year, the current national average price of rebar and hot rolling fell by 12% and 11%, respectively, while the prices of 62% grade Australian fines and domestic Tangshan iron concentrate prices only dropped by 14% and 11%. The demand for iron ore is not reduced and the prices are relatively firm. This makes the space for steel companies to reduce costs very limited and the situation is even more difficult.

Institutional analysts believe that the recovery of downstream demand in the steel industry is still expected to be relatively slow. The fundamental shift in the contradiction between supply and demand in the steel industry cannot be realized in the short term, and the overall weak state of the steel market will continue.