Since September, the situation of the steel market has gradually become clear, and it has got rid of the influence of the downward pressure on the economy and the decline in real estate data in August, and the overall situation has shown a slight upward trend. Steel production continued to decline, and the construction industry demand, which was affected by factors such as the new crown pneumonia epidemic and flood conditions, gradually recovered, and demand began to show a seasonal rebound, creating a good operating environment for the steel market. On the whole, the fundamental operating logic of the steel market is still affected by the two-way effect of increased production cuts and the rebound in demand during the peak season. It is expected that the steel market may still form a mismatch between supply and demand during the year.

Production restriction policy has been stepped up, and output continues to decline

Due to the intensified implementation of the production restriction policy, the output of pig iron, crude steel, and finished products continued to decline, superimposed on the rebound of the epidemic in some areas, and the output of crude steel fell significantly. According to statistics from the China Iron and Steel Association, the average daily crude steel output of key statistical steel companies in August fell by 2.1% month-on-month. In terms of weekly data, the output of the five major steel products in the latest week reached 10.152 million tons, a decrease of 9700 tons on a week-on-week basis. Among them, the weekly production of rebar reached 3.272 million tons, which was a decrease of 73,600 tons on a week-on-week basis. Although the output of hot-rolled coils and other varieties has increased, the overall supply continues to be tight, which is significantly lower than the same period in 2019 and 2020.

In the first half of this year, my country's crude steel output increased by 11.8% year-on-year. In order to achieve the goal of "a negative year-on-year increase in crude steel production for the whole year", efforts will be made to reduce crude steel production from September to December. If calculated based on the average daily output in August, from September to December, the crude steel output of Liaoning, Shandong and other provinces will need to fall by more than 10%, and the crude steel output of Chongqing, Gansu, and Guangxi will fall by more than 20%. In addition, in order to prevent production restrictions from being concentrated at the end of the year, some regions put the task of restricting production ahead, increasing the proportion of production restrictions from September to October. This undoubtedly strengthened the role of restricting production factors in promoting the "Golden Nine and Silver Ten" market conditions. In particular, this year’s autumn and winter production restrictions will also be affected by the Winter Olympics. It is expected that this year’s autumn and winter production restrictions will be controlled by time periods. The restricted cities may not only be "2+26" cities.

Since late August, the steel industry has shown new changes in production restrictions:

First of all, the main restricted production areas have changed. Before August, the restricted production areas were mainly concentrated in the northern and western regions such as Hebei, Tianjin, Shandong, Shanxi, Henan, Gansu, and Shaanxi. After late August, the restricted production areas gradually shifted to the south of the Yangtze River, mainly concentrated in Hubei and Hubei. Jiangxi, Guizhou, Guangdong, Jiangsu and other places.

Secondly, the production and electricity curtailment will be carried out at the same time. In addition to curtailing crude steel production, many provinces, including Jiangsu, have tightened power restrictions.

Secondly, the limited production has been led by central enterprises and state-owned enterprises to expand to private steel enterprises. Some private steel companies’ bar production lines, and even the entire mill’s rolling mills, have been shut down for one month. Through production line shutdowns and blast furnace maintenance, the output has been reduced.

Finally, electric furnace steel is also speeding up to enter the ranks of restricted production, which has a certain impact on the demand for scrap steel.

It can be seen that in the second half of the year, the steel industry began to limit production from point to surface, from a long process to a short process. This laid a good foundation for the market situation in September.

In addition, the "Implementation Plan for Carbon Peak in the Iron and Steel Industry" and "Guiding Opinions on Promoting the High-Quality Development of the Iron and Steel Industry" will also be released before the end of this year, and the later deadlines will surely be pushed forward.

Demand rebounds seasonally, but there are still hidden worries.

Statistics show that the apparent consumption of the five major steel products in the latest week reached 10.706 million tons, an increase of 291,800 tons on a week-on-week basis. Among them, the transaction volume of the construction steel market continuously rebounded to a single-day average of more than 200,000 tons, reaching a maximum of 290,000 tons. In the same period, the total inventory of the five major steel products reached 20.24 million tons, a week-on-week decrease of 553,100 tons. However, the author believes that absolute consumption is still at a low level.

At present, the market's concerns about demand are mainly manifested in the following aspects: First, the economic data has declined significantly since July. Second, the real estate control policies continue to be strict, and leading real estate companies face the risk of breaking the capital chain. Third, the economic operation data of downstream industries generally fell short of expectations. The production and sales of home appliances and automobiles have fallen, the sales of heavy trucks have fallen sharply, the sales of excavators have fallen sharply, and the production and sales data of other downstream industries have not been satisfactory.

In addition, there have been many new changes in the market:

First, the National Development and Reform Commission recently stated that the issuance of special bonds in the first half of this year has slowed down compared with last year, but the scale of special bonds issued in the second half will be higher than the same period last year, which will help stabilize investment growth in infrastructure and other fields.

The second is that the PPI (Producer Price Index) that exceeded expectations in August points to the economic fundamentals without the risk of stalling down. The room for further easing of monetary policy in the short term is relatively limited, but the pressure on the transmission of PPI prices to the midstream is also increasing.

The third is the formation of a domestic pricing method with coal as an "anchor" for bulk commodities, and the price of carbon elements will be subject to stricter control. The new valuation system brought about by changes in coking coal prices will lead to new adjustments in steel prices.

Overall, the national reduction in crude steel production continues to land, demand shows a seasonal rebound, and the pressure of superimposed inflation still exists. It is expected that the steel market will still have the possibility of forming a mismatch between supply and demand during the year, thus making the steel market "easy to rise but not easy to fall." "The situation. Of course, we must also consider macroeconomic policies to ensure supply and price stability and to respond to the demands of downstream companies' cost pressures. Steel prices will basically not be staged as they did before mid-May of this year.