Medium-term demand for rebar is still tough

The downstream demand industries for rebar are mainly the infrastructure industry and the real estate industry. Infrastructure investment demand depends on the intensity of fiscal policy. Although the market has been expecting policy tightening before, from the content of the government work report, the tightening intensity is significantly less than expected. The target of the fiscal deficit rate is set at 3.2%. The debt scale was 3.65 trillion yuan, a drop of 0.4 percentage points from 2020 and 100 billion yuan, but it was much higher than that in 2019, showing that the macro policy does not make a sharp turn. Taking into account the large number of approvals for infrastructure projects since the second half of last year, the overall performance of infrastructure investment in the first half of this year may still be relatively strong.

Although the real estate industry is suppressed by policy controls, it still has a certain degree of resilience. As real estate financing continues to tighten, real estate companies will still adopt a high-turnover model to withdraw funds. From January to February this year, the sales area of commercial housing in 30 large and medium-sized cities across the country was 27,029,500 square meters, a year-on-year increase of 181%. In addition, since the fourth quarter of last year, the newly-started area has continued to increase positively, of which December was 6.32%; the growth rate of the construction area for the whole year of last year also reached 3.7%, of which 28.03% in December. Both the strong sales and the existing construction area will support real estate investment. It is expected that the growth rate of real estate investment for the whole year of this year will be 4% to 5%.

The output of blast furnace has fallen due to the limited production upgrade

But the resumption of electric furnace production has accelerated recently

Since March, with the upgrading of the production restriction policy in Tangshan City, Hebei Province, the blast furnace shutdown and maintenance have been increased, which has caused the output of long-flow steel plants to fall. Last week, the average daily molten iron output of 247 steel mills across the country was 2.406 million tons, a decrease of 44,200 tons from the previous month, which was the largest month-on-month decrease in recent months. The operating rate of blast furnaces in Tangshan City, Hebei Province decreased by 17.46 percentage points from the previous month to 50.78%. . Judging from the news released last Sunday (March 14), it is unlikely that the environmental protection production restriction policy in Tangshan City, Hebei Province will be relaxed in the short term, and the Ministry of Industry and Information Technology has repeatedly emphasized the need to achieve negative growth in crude steel production. Other provinces do not rule out the possibility of follow-up. Therefore, the author believes that this year's long-process steel mill output contraction may be expected throughout the year.

However, the current profit level of short-process companies is significantly higher than that of long-process companies. Coupled with their large supply elasticity and less impact of restricted production policies, since the long Spring Festival holiday, short-process companies have begun to resume production quickly. Taking the weekly production of rebar as an example, a total of 399,300 tons has been increased in the three weeks after the Spring Festival holiday, of which the output of short-processes increased by 429,500 tons, while the output of long-processes decreased by 30,200 tons. The operating rate of 71 household appliances furnace steel plants nationwide also reached 61.94%, an increase of 55.13 percentage points from the first week after the Spring Festival. However, it is worth noting that the proportion of short-flow rebar output after 2017 is around 15%, and it has reached 13.33% at present; the operating rate of electric furnace enterprises has basically reached 70%~75% in recent years. Therefore, in the medium term, the room for increasing the production of electric furnace steel is relatively limited.

Coke prices weaken, cost support moves down

The author mentioned in some previous analyses that the cost-side support is a very important reason for the rebound in steel prices after the Spring Festival holiday. However, after the Spring Festival, the coke disk began to fall sharply, the spot price also experienced four rounds of downward adjustments, and the ore price also began to peak and fall from the beginning of March. The change in the tight coke supply situation is the main reason for the price drop this round, and the rebound in all-link inventory in the past two weeks has further intensified this expectation. Taking into account that the current profit of the coking plant is still above 700 yuan/ton, the author believes that the commissioning of new coke production capacity will continue. In the context of carbon peaks and carbon neutrality, the demand for raw materials from domestic long-flow steel mills is likely to gradually decline, so the price of coke is likely to fluctuate weakly. Due to the overall low profits of the current long-process steel mills, the decline in raw material prices may drive steel prices to weaken in stages.

There is an expected short-term overdraft risk for rebar

From a short-term perspective, after mid-March, the demand for rebar has begun to gradually recover. Last week, when the weekly rebar output rebounded to 110,700 tons, the social inventory fell by 20,800 tons from the previous month. However, rebar still presents a pattern of high output, high inventory, and small basis. The total inventory is only 3,451,300 tons lower than the same period last year, which is much higher than the historical level of other years; the daily transaction volume of construction steel rebounded on March 11 After reaching 241,000 tons, it quickly dropped to 160,800 tons. The author predicts based on the current level of rebar production that the average daily trading volume per week will reach more than 250,000 tons in order to achieve a balance between supply and demand. Coupled with the small basis difference of the current rebar, this requires higher demand recovery strength in the later period. Once the demand recovers less than expected, the price may be subject to periodic adjustment risks.

In general, from a medium-term perspective, with limited space for electric furnace steel production and suppression of blast furnace output, the supply of steel is expected to shrink throughout the year, and demand for steel will still increase this year, so the price of rebar The upward trend may not change. However, the rebar market may face expected overdrafts in the short term. Affected by negative factors such as increased production of electric furnace steel and lower cost support, the author still recommends waiting for the callback buying opportunity instead of chasing higher prices; arbitrage can be considered. Profit strategy for multiple steel mills.