The reduction in output is gradually implemented, and the profit will become more profitable.

Entering the second half of the year, detailed rules for production suspension restrictions have been reported in many regions. According to market reports, steel enterprises in Jiangsu Province have received clear targets for this year's output not to exceed last year's, and production control measures have been launched one after another. Shandong Province issued a notice clearly requiring that the output of crude steel this year should not exceed 76.5 million tons. According to data from the National Bureau of Statistics, the national crude steel output in June 2021 was 93,875,200 tons, a year-on-year increase of 1.5%. From January to June, the national cumulative output was 563.26 million tons, an increase of 11.8% year-on-year. From a national perspective, assuming that this year’s total volume does not exceed last year, based on the crude steel output from January to June of this year of 563 million tons and the annual crude steel output of 1.065 billion tons in 2020, the output in the second half of the year will be 502 million tons. The average output was 83.67 million tons, a decrease of 10.83 million tons or 10.83% from the monthly average in the first half of the year. The author predicts that under the background of production cuts, the market may show the characteristics of weak raw materials and strong steel.

Future inventory has limited impact on prices

At present, it has entered the most concentrated period of rainfall throughout the year. This year's rainfall involves a large area, strong rain, and a long duration, which has a substantial impact on many industries, including real estate and infrastructure. From July 23 to July 29, the apparent demand for rebar was 3.309 million tons, a week-on-week decrease of 202,900 tons and a year-on-year decrease of 267,400 tons; correspondingly, the total rebar inventory was 11.3351 million tons. A week-on-week decrease of 20,300 tons and a year-on-year decrease of 842,800 tons. The apparent demand is lower than the same period in 2019 and 2020, and the characteristics of high inventory are obvious. The high point of this year's rebar inventory is 18.317 million tons, which is lower than 2020 but significantly higher than previous years. In the spring destocking phase, the average weekly destocking value in 2020 is 872,500 tons, but this year is only 557,800 tons, which is about 25% lower, leading to the total inventory of the initial summer inventory accumulation over last year. High inventories will bring resistance to the rise of steel prices in the off-season of demand, but the overall impact in the second half of the year will be small. First, the market is concerned about inventory variables. According to the situation in 2020, if the inventory is removed quickly in autumn, it will not put pressure on prices; second, production reduction is the core of the second half of the year. When production reduction meets the demand season, inventory becomes the water storage on the supply side. Pond, inventory digestion is expected to accelerate.

Profits are rebounding, output is falling, and production pressure is gradually unfolding

Due to the recent strong steel and weak iron ore, the profits of steel mills have rapidly rebounded from the margins of profit and loss. As of the week of July 16 to July 23, the average cost of hot metal excluding tax of the 10 sample steel plants in Tangshan City was 3760 yuan/ton, the average billet including tax cost was 4722 yuan/ton, and the average gross profit of steel plants was 478 yuan. The average cost of 18 independent electric arc furnace steel plants was 4946 yuan/ton, the average profit was 316 yuan/ton, and the profit of valley power was 413 yuan/ton, which rose for three consecutive weeks. Although the current profit per ton of steel still has a large gap compared with the profit at its peak, the trend is upward and the trend is more stable. Profit is the driving force behind the production of enterprises, and rising profits means attracting enterprises to increase production. To be sure, the operating rate of blast furnaces in steel mills across the country did not rise with the increase in profits. After falling to the extreme value of 55.53% from June 26 to July 2, it quickly returned from July 3 to July 9. The normal level of 77.61%; since then, the operating rate of the blast furnace has shown a small-step downward trend, falling to 75.20% in the week from July 17 to July 23, which is the lower value of this year. This is supported by the weekly production. As of July 29, the weekly production of rebar was 3,288.7 million tons, which was 13.46% lower than that in mid-June (June 11 ~ June 17). The increase in profits while the decrease in output fully shows that the reduction in output is entering the landing stage from the plan.

"Looking back" and ensuring supply and price stability go hand-in-hand, and steel prices have risen steadily

Since May, high-level voices have been transmitted in two directions. One is "looking back". On July 26, the Central Ecological Environmental Protection Inspectorate Office stated that it would continue to carry out the second round of routine inspections, focusing on promoting high-quality development, strictly controlling the blind launch of the "two highs" projects, and "looking back" on the implementation of capacity reduction. The central ecological and environmental protection inspector and "look back" on the implementation of the rectification of problems found to conduct key inspections to further consolidate the political responsibility for ecological environmental protection. The second is to ensure supply and stable prices. Since May, the National Development and Reform Commission and the Ministry of Industry and Information Technology have stated many times to resolutely crack down on hoarding, malicious speculation, and price hikes. The downstream of construction steel involves real estate, infrastructure and other social and people's livelihood projects. Soaring prices or large fluctuations will have a negative impact on the real economy. Steel prices do not have the possibility of a sharp rise and fall in May and before, or move upward in a mild manner.

In summary, the national crude steel production reduction task has moved from expectations to implementation, and the steel supply side will be tightened overall in the second half of the year. At the moment when demand is off-season, high inventories limit the rise in steel prices in the short term, but the subsequent destocking speed may accelerate, and the overall impact on prices is not significant. Although the profit of steel mills has rebounded from the margin of profit and loss, the production of rebar has not increased but decreased, which further confirms that the reduction of production is taking place. In 2021, the “look back” inspection work of steel production reduction and price-insuring and stable supply will proceed simultaneously, which defines the operating center of steel prices. In the future, steel prices will run between reducing crude steel production and maintaining supply and price stability, showing a volatile and strong operation. It is possible to focus on increasing the ratio of snail ore into the operation strategy in the second half of the year.