Since the beginning of November, due to the implementation of environmental protection and production limit is not as good as expected, the impact of limited production on steel supply has failed. The negative impact of Sino-US relationship uncertainty under the background of trade friction on the economic impact of next year, the spot price of steel has fallen rapidly, steel The factory's profits have shrunk sharply, the market sentiment is pessimistic, and it is transmitted from the finished end to the upstream. After entering December, Sino-US trade frictions temporarily eased, and steel prices began to rebound from the demanding South. In the context of the re-introduction of documents to increase production limits in Tangshan and other places, the author believes that although the spot price of steel still has the driving force to continue to fall, the short-term downside of steel futures contracts is limited, and there is potential for bottoming out in the medium term.

Production restriction policy affects steel supply

After the seasonal maintenance of the blast furnace in August, in September, Tangshan, Wuhu, Linyi, Jincheng and other steel mills have different degrees of production, while Xuzhou, Wu'an and other regions are still in limited production. In October, although the heating season in Tangshan Guye District was advanced, Tangshan temporarily restricted production due to weather reasons, and China International Import Expo affected the production in some parts of Jiangsu, the average utilization rate of blast furnace capacity continued to rise, showing the Ministry of Ecology and Environment. After indicating that the product is no longer “one size fits all”, the impact of environmental protection and production restrictions on supply is weakened. In November, the operating rate of the blast furnace did not decrease significantly, and only dropped 0.28% after entering the heating season on November 15. This is a big gap compared with the 7.05% decline in blast furnace operating rate in the same period in 2017. Although the limited production documents cover a wider area this year, the overall production limit is limited.

As steel prices fell sharply, steel companies' profits were compressed. As of December 7, the EAF capacity utilization rate dropped significantly this month compared to the November average. However, according to the current blast furnace capacity utilization rate and EAF capacity utilization level, if the capacity utilization rate is maintained at this level in December, the output will be 200,000 tons/day higher than the same period in 2017. During the winter storage period, steel supply pressure is relatively high.

On December 3, Tangshan issued the "Circular on the strict implementation of the peak production requirements of blast furnace equipment in the steel industry." From the perspective of policy intentions, environmental protection and production restrictions have a tendency to strengthen. If this policy is strictly implemented, it will improve the short-term supply and demand relationship, which will help support steel prices.

Steel mill inventory increased

Due to the cold weather in the north and the low demand, the southern and eastern China are still in good demand, and the north-south price difference of steel remains at a high level. The Beicai South Games will remain at a high level. As of last week, the number of Beicai Nanyun has remained above 800,000 tons for the fourth consecutive week. On the one hand, there is demand support in the South and East China; on the other hand, traders expect deviations and poor enthusiasm for goods, which makes social stocks continue to fall. During the same period, steel mill stocks continued to accumulate, but steel mill stocks fell significantly last Friday.

This year, steel mill stocks began to accumulate in early November, the earliest year of the basement in recent years, nearly one month ahead of 2017. At present, the price right of steel mills has increased significantly. The continuous increase in inventory pressure on steel mills has led to a continuous correction in the spot price of steel from the beginning of November. As social stocks are at historically low levels, it is more difficult for traders to drop their prices at a large price. The decline in steel prices is mainly from the steel mills. Last week, steel mills' inventories fell, and some southern steel mills began to raise ex-factory prices. However, last week's inventory decline was mainly concentrated in the northern steel mills, and this part of the reduction will hit the southern market through Beicai Nanyun. In the later period, with the seasonal reduction of steel demand, the inventory pressure of steel mills may further increase, which will cause the spot price of steel to continue to weaken, and there is still room for the spot price to fall.

However, the main contract price of steel futures reflects the pre-judgment of supply and demand in the peak season after the spring, and the current spot price adjustment has limited impact. Moreover, the current spot price decline will have a restraining effect on supply, superimposed infrastructure construction plus code and relatively low steel inventory, and it is expected that next spring will be more prone to better-than-expected demand. Therefore, the short-term downside of steel futures prices is limited, and it is at the stage of shocks and bottoming.