Demand for steel terminals in July was still greatly affected by seasonality, and there is limited room for supply contraction. It is expected that steel prices will continue to fluctuate and decline in July, and it may be difficult for steel companies to improve significantly in the short term.
The Zhitong Finance App learned that Huabao Securities released a research report saying that due to hot and rainy weather in many places in June, project commencement was restricted, steel terminals gradually entered a low consumption season, the conflict between supply and demand was prominent, and steel prices fluctuated downward. The overall price of raw materials showed a trend of high and low prices. Steel companies' profits shrunk further, profit margins fell below 50%, and thread losses continued to expand. Despite a month-on-month improvement in profits for hot rolls and cold rolls, they are still in the midst of losses. Demand for steel terminals in July was still greatly affected by seasonality, and there is limited room for supply contraction. It is expected that steel prices will continue to fluctuate and decline in July, and it may be difficult for steel companies to improve significantly in the short term. After August, as the industry is expected to gradually enter the peak season, it is unlikely that supply will increase sharply under a high base, and steel prices are expected to gradually recover.
Huabao Securities's main views are as follows:
Weak increases in steel supply and demand in June led to accumulation of stocks on the inventory side. Inventories of the five major materials all increased by varying degrees over the same period last year
Crude steel production in June was 91.61 million tons, 0.2% year on year; steel production was 117.745 million tons, 1.8% year on year. Among the 247 sample steel companies in the country, the average daily iron and water production in June was 2.3861 million tons, 1.56% month-on-month, and -1.96%; the average operating rate of blast furnaces was 82.37%, an increase of 1.02 percentage points over the previous year, a year-on-year decrease of 0.83 percentage points, and the year-on-year decline widened. Affected by rainy weather in the south and hot weather in the north in June, downstream steel gradually entered a low consumption season. Insufficient demand caused stocks to accumulate on the inventory side. Inventories of the five major materials all increased by varying degrees over the same period last year. By the end of June, stocks of rebar, wire, medium and heavy plates, hot-rolled coils, and cold-rolled coils were 7.8462 million tons, 1.6623 million tons, 2.2336 million tons, 4.128 million tons, and 1.869 million tons, respectively. Compared with the same period last year, the changes were 5.5%, 16.7%, 21.5%, 14.3%, and 25%, respectively.
Steel has entered a low consumption season, and steel prices have fluctuated downward
Steel consumption declined overall in June due to the off-season. The decline in long materials was greater than that of plates. The apparent consumption of rebar, wire, medium and heavy plates, hot-rolled coils, and cold-rolled coils in June was 9.2982 million tons, 3.6157 million tons, 6.3878 million tons, 13.0218 million tons, and 3.4328 million tons, respectively. They were -36.6%, -39.1%, -17.9%, -16.5%, and -17.8%, respectively. The overall performance of terminal consumption is weak, and steel prices are operating under pressure. The composite price index for steel in June was 104.24, -2.6% month-on-month and -4.1% year-on-year.
The overall price of raw materials showed a trend of high and low prices in June
After entering the middle and late stages, as the characteristics of the downstream off-season of steel gradually became apparent, the enthusiasm of steel mills to produce was suppressed, and raw material prices fluctuated and weakened. The monthly average of the Platts iron ore price index in June (62% Fe: CFR: Qingdao Port) was 106.5 US dollars/ton, -9.37% month-on-month, -5.13%; the monthly average value of the coking coal price index was 1912.6 points, -1.95% month-on-month, 10.86% yoy; the monthly average value of the coke price index was 1847.5 yuan/ton, -3.3% month-on-month and 4.57% year-on-year.
Steel companies' profit margin was less than 50%, and thread losses increased to more than -200 yuan/ton
As the impact of the off-season gradually deepened, terminal demand was weak, the conflict between supply and demand became prominent, steel prices fluctuated and declined, and steel companies' profits shrunk further. According to Steel Union data, in June, out of a sample of 247 companies, the profit margin of steel mills was 49.35%, less than half. The average monthly profit of rebar blast furnace companies in June was -201.03 yuan/ton, and losses continued to expand; the average monthly profit of hot-rolled coils and cold-rolled coils was -146.02 yuan/ton and -73.17 yuan/ton, respectively, up 44.59 yuan/ton and 30.66 yuan/ton, respectively. Despite the month-on-month improvement in profit, they are still in the midst of losses.
Risk warning: Steel mill supply fluctuates greatly; the macro-level impact on real estate and infrastructure falls short of expectations; uncertainty in the external environment affects exports; downstream demand falls short of expectations.