As the release of steel mill supply gradually progressed in April, compounded by national policies to stimulate downstream demand, the overall rate of steel de-stocking accelerated in April. The improvement in profits of steel companies stimulates the enthusiasm of steel mills to produce, and it is expected that the capacity utilization rate of steel mills will continue to grow in May.
The Zhitong Finance App learned that Huabao Securities released a research report saying that in April, as the release of steel mill supply gradually progressed, combined with national policies to stimulate downstream demand, the overall rate of steel de-inventorization accelerated in April. Due to the strong desire for steady domestic growth, the market has strong expectations for steel demand, and steel supply is growing faster than demand. Under strong expectations and weak reality, the steel supply and demand pattern tends to relax, and overall steel prices fluctuate and weaken. Due to weakening raw material prices and a downward shift in steel mill production costs, the overall profits of steel companies showed a phased improvement. However, there were differences between varieties. Losses on threads and hot rolls continued to narrow, and cold roll profits declined.
Favorable real estate policies have been released centrally, and the speed of physical workload due to combined infrastructure-side investment is expected to accelerate. Manufacturing industries such as automobiles and home appliances will continue to be booming, and steel demand is expected to be supported. The improvement in profits of steel companies stimulates the enthusiasm of steel mills to produce. It is expected that the capacity utilization rate of steel mills will continue to grow in May. As the flood season in the south will advance northward from the Pearl River basin to the Yangtze River basin, terminal demand will be limited due to droughts and floods, and compounded cost support is strengthened. It is expected that steel prices will continue to fluctuate.
Huabao Securities's main views are as follows:
The release of steel mill supply progressed steadily in April, and the overall steel dewarehousing process accelerated
Average daily iron and water production and blast furnace operating rate both increased month-on-month in April. Among the 247 sample steel companies in the country, the average daily iron and water production rate in April was 2.258,000 tons, 1.8% month-on-month, and -7.9%; the average operating rate of blast furnaces was 78.7%, 3.4% month-on-month, and -6.4%. As the seasonal capacity utilization improvement process of steel mills progressed gradually, compounded by national policies to stimulate downstream demand, the overall rate of steel de-inventorization accelerated in April. In particular, for construction steel, which previously saw a sharp decline in demand, the decline in inventories this month was particularly evident. The average monthly inventory of rebar, wire, medium and heavy plate, hot rolled coil, and cold rolled coil in April was -18.4%, -28.6%, -4.3%, -4.3%, and -4.2%, respectively.
Consumption growth falls short of supply, and steel prices are running weak
Huabao Securities said that steel consumption diverged in April, with construction steel such as rebar and wire growing month-on-month and declining year-on-year; steel used in manufacturing industries such as medium and heavy plates, hot-rolled coils, and cold-rolled coils declined seriously month-on-month, with a slight increase over the previous year. In April, due to strong domestic desire for steady growth, the market had strong expectations for steel demand, and steel supply grew faster than demand. Under strong expectations and weak reality, the steel supply and demand pattern tends to relax, and overall steel prices fluctuate and weaken. The composite price index for steel in April was 105.77, -2.3% month-on-month and -7.8% year-on-year.
Steel mill production costs have moved downward, and steel companies' profits have improved in stages
Huabao Securities pointed out that the raw material price trend in April diverged due to a marked drop in shipments between Australia and Brazil, while the resumption of steel mill production continued to advance, and iron ore fundamentals improved marginally, supporting strong mineral price fluctuations. Affected by slow growth in iron water production and poor willingness to replenish stocks, demand in the bifocal market is still weak, and bifocal prices are running weak.
The monthly average of the Platts iron ore price index in April (62% Fe: CFR: Qingdao Port) was 110.9 US dollars/ton, 1.3% month-on-month, -4.5%; the monthly average value of the coking coal price index was 1884.7 points, -9.1% month-on-month and -14.2% year-on-year; the monthly average value of the coke price index was 1707.5 yuan/ton, -8.6% month-on-month and -27.4% year-on-year. Steel mill production costs declined in April, and overall profits of steel companies showed a phased improvement. According to Steel Union data, in April, in a sample of 247 companies, the profit margin of steel mills was 42.64%, an increase of 17.79 percentage points over the previous month.
Risk warning: Consumption growth in manufacturing industries such as home appliances and automobiles fell short of expectations; the boost in real estate and infrastructure at the macro level fell short of expectations; downstream demand recovery fell short of expectations; supply from steel mills increased rapidly, putting pressure on the improvement of steel fundamentals.