Why The Recent Surge In Chinese Steel Prices?
I believe there are three reasons:
First, the cost of high support becomes the main reason for price increases: Since October, there has been the strong rise in domestic coke market. Based on conditions that coking coal market has more serious shortage of raw materials, coke production enterprises inventory is low, and steel coke inventory level is relatively low, to maintain the normal operation of the blast furnace, people were forced to accept the price adjustment. Although the Development and Reform Commission has repeatedly expanded the amount of coal supply, the phenomenon of shortage of resources can’t be alleviated in the short term. In November, coke prices continue to form a high support and conduction to the billet market. Billet storage spot resources remain low, and the market flow of resources is limited. According to my network on November 1, statistics show that the current Tangshan Port and the mainstream storage billet stock is about 306,000 tons, which is only one second of that during the same period last year. At present, the overall operating rate of the downstream billet rolling mills is at a normal level, and the supply and demand of billets continue to be good.
Second, the tight cargo price and manufacturers’ guide prices are skyrocketing: For the leading domestic profiles, strip, hot-rolled, plate and other related steel companies introduced by the November, guidance prices have risen sharply with the increase rate of 30-100 Yuan/ton; especially steel, sheet metal rose among the first, making the market confidence to be boosted.
Third, the excess capacity to resolve the steel, blanks expected to enhance the supply reduction: According to my network statistics Tangshan steel blast furnace operating rate in early October remained at 90% -91%, while the decline since mid-28 statistics was down to 83.03 %. Taking into account that the current strengthening of environmental management is to be normal, coal supply constraints, rising costs and other factors on the impact of steel production have been gradually revealed. In addition, on the morning of October 29, the meeting held in Tangshan City was to resolve the excess capacity of iron and steel production capacity of the removal (storage) action, as a symbol of Tangshan has been completed this year to resolve steel production capacity task. After the operation, this year, the city’s total reduction of blast furnace 15 to dissolve iron production capacity of 7.8 million tons, 12 converter pressure reduction, steel production capacity of 8.29 million tons, on schedule to complete the annual target, to fulfill the capacity to play "Tangshan responsibility ". With the solemn commitment to the provincial party committee, the provincial government and the urban people handed in a satisfactory answer. Some manufacturers shut down part of the announced blast furnace, the overall volume of the billet has been reduced, so that the original blank in short supply, was even more intense, forming billet prices support.
From the current basic environment to the traditional off-season, with lower temperatures, real demand will continue to decrease. But the arrival of the winter makes the northern region have increased pressure on the environment, steel mills will face a passive cut. The billet demand phenomenon is difficult to change, steel prices in the short term support will maintain strong operation. What still needs to be vigilant is that the sharp pull in April and August this year, and it’s due to poor demand and the end; in conclusion, I believe there is a short-term risk of callback steel market, strong bottom of the city to build, and the recent billet price will still have some increases.