Fundamental changes in supply and demand of hot rolling from June to July and focus on trends

The market volatility in May was unprecedented in the past ten years. The national average price of hot-rolled products rose from RMB 5748/ton before May 1 to RMB 6,737/ton on May 12, and the current price has returned. At 5495 yuan/ton, the difference between the upper and lower one month has exceeded the level of 2,000 yuan/ton. Under the large fluctuations, market sentimental fluctuations have caused prices to show over-increasing and over-declining prices, panic on the downstream end of price increases, and panic on the market end of falling prices. Now that June has entered, the current market price is relatively stable, but the degree of caution has increased significantly. There is no obvious help for consumption. So the off-season is approaching, what kind of trend will the market consumption show? How will the contradiction between supply and demand evolve? What restrictions will the market have? Let's follow the current main line logic to sort out

1. Market supply side From the perspective of fundamentals, Mysteel's statistics show that the actual hot-rolled output in May was 22.46 million tons, with an average daily average of 724,500 tons; the hot-rolled output in June is expected to be 21.44 million tons, with an average daily average of 714,600 Tons, the hot rolled output in July is expected to be 22.9 million tons, an average of 738,000 tons per day. From the perspective of inventory, the actual total inventory in May was 3.84 million tons, an increase of 2.6% month-on-month and a decrease of 10% year-on-year; the total inventory in June is expected to be 3.955 million tons, an increase of 2.9% month-on-month and a year-on-year decrease of 0.6%. From the production and inventory data, it can be seen that short-term production has declined slightly, but the inventory has shown an expected increase from the previous month, and the trend of weaker margins has been reflected. At present, the profit of steel mills from the disk and reality shows that there are still some profits for hot rolled coils. Although there are fluctuations, they are generally maintained at the level of 200-400 yuan/ton. It is this profit that allows production to continue. According to the results of Mysteel's survey, from May to June, and even July, the actual amount of independent maintenance and expected willingness of steel mills were still very low. There were only 110,000 tons in May, 480,000 tons in June, and only 360,000 tons in July. That can be roughly qualitative, the market supply will continue to maintain a high level without the influence of particularly large external forces (too low profits, stricter production restrictions, etc.). 

                                                             Hot rolled coil supply and demand balance sheet from May to July

     Hot-rolled futures disk profit

Hot rolled steel mill cash cost

Planned maintenance volume of hot-rolled steel mills from May to July

2. The downstream manufacturing industry is actually a processing industry, earning only stable processing profits, which are carried out by the law of upstream and downstream transmission, but it also represents that its ability to resist risks is very low. This integration is mainly reflected in the fact that in the case of rapid price increases, orders are received in advance to save profits, but they are often quickly squeezed out and losses occur. In 2015-2016, the first decline and then the rise, also presented a situation of first earning and then compressing, but this cycle is longer, so the impact on the lower end is small (because there is enough time to digest). However, from this year’s perspective, the fastest one week has risen by nearly 1,000 yuan/ton, which means that it loses money before it can take any action after receiving the order, and the suppression of consumption is too obvious. This is also in the second half of the month. After the downstream profit is redistributed, consumption returns to the momentum. From the perspective of GDP, the manufacturing industry has accounted for 25-30% in the past five years, which has a large impact and is also harmful to the economy. Immediately entering the traditional off-season, Mysteel also did some industry research, the details are as follows:

1. Steel structure industry:Mysteel's monthly survey shows that the steel structure industry received no significant increase from the previous month in June, which was significantly lower than the 10% growth level estimated at the beginning of the year. The total number of samples in June increased by only 1.06% compared to May. When divided into three regions, the overall East China region decreased by 6.15%, the southern region increased by 1.76%, and the best growth rate was 4.07% in the northern region. From the perspective of this regional division, the proportion of infrastructure and key projects supported is relatively high, while the economically developed East China region has shown a slow pace.

According to the company's feedback, there are two main problems:

A. After receiving the orders in the early stage of the project, the losses were serious and the total budget was insufficient, resulting in delays in the construction period.

B. For some unaccepted projects, the total budget given is basically no money to make compared with the current profit, so most of them are unwilling to accept such projects. From these two aspects, it can be seen that the total project volume is actually sufficient, but it is "unprofitable" and the overall pace is slowing down. However, for this industry, there is still room for future growth.

Steel structure orders in June

2. Construction machinery industry: The current feedback from large enterprises is that orders fell by about 15-20% from June to July. In terms of the structure of domestic and foreign orders, the decline in domestic orders is greater than the decline in foreign orders. For construction machinery, at present, it is mainly the slowdown and decrease of increase in domestic infrastructure projects and real estate projects, and the driving forward of the entire machinery industry is mainly: excavators and loaders, of which medium-excavation and small-scale Digging is dominant. So looking at this year, the growth rate of the infrastructure and real estate industries has slowed down, and the domestic machinery consumption growth space for auxiliary equipment is relatively limited. Fortunately, the current overseas consumption continues to be maintained. Therefore, from a qualitative point of view, construction machinery has shown a short-term peak. Without special circumstances, its downward trend will remain at least one quarter. 3. Heavy trucks: The rise of heavy trucks in the past two years is mainly due to two reasons: 1. Frequent increases in vehicle emission standards have led to the alternation of national 4, national 5, and national 6 leading to untimely market follow-up, and increased inventory leading to a decline in consumption ; 2. When overloading is restricted, the capacity will drop, and the quantity will be used to make up. Therefore, driven by the incident, the upward momentum of the heavy-duty truck industry seems to have peaked. Even the forthcoming new national 6 standards cannot stimulate the market. After all, trucks are not passenger cars, they are all rigid consumption, so from a qualitative point of view, it will peak in the short term.

3. Containers and shipbuilding: Since last year, the import and export trade has shown a significant increase. Last year, it was mainly imported, and this year it was mainly export. In the post-epidemic era, the urgency of overseas recovery is greater than that of China, but China is a big manufacturing country, so buying from China is also the most important way. According to the global vaccine penetration rate and the universal immune barrier, it will still take one quarter before it can be expected to be achieved. If the unemployment rate in overseas countries does not drop significantly, there will continue to be room for consumption to maintain. According to company feedback, new orders received by shipping companies have risen significantly recently, while orders for containers have been received in September. Therefore, qualitatively speaking, the month-on-month rise and flatness of these two industries must not be a problem.

4. Substrates for cold rolling: As far as the utilization rate of Mysteel cold rolling production line is concerned, it is still maintained at a relatively high level of more than 80%, and there is no sign of decline in the short term. However, judging from the recent consumption of automobiles and home appliances, there is indeed a pattern of joint decline in production and sales, which also reflects the off-season consumption. In addition, the tension of automotive chips was originally expected to be relieved in the first quarter of next year. Even if it is advanced now, it will be difficult to ease the situation in the third quarter of this year. At least in June to July, it will still show a decline in consumption. In addition, the cancellation of export tax rebates is in line with stabilizing domestic prices and suppressing imported inflation. Therefore, when the policy is promulgated, cold-plated exports that were overheated in the previous period will also return to a relatively low level. The current cold and hot price difference is maintained at 600+ yuan/ton, so although it will not immediately reduce the production of the cold system, its basis will be shrunk. Qualitatively speaking, the room for growth is limited. From the above supply side, the space for reduction is limited. From the perspective of consumption, most industries have fallen flat or slightly, and the reflection of off-season consumption is relatively clear. This will also accumulate market inventory, and watch demand will show a downward trend. But will the market price fall because of the contradiction between supply and demand? If the market is based on current fundamentals, it is very difficult to rise. From a personal research point of view, the level of "emergency events" will be greater than "fundamental", while recent emergencies and expectations are nothing more than "environmental protection review" and "safe production before the 100th anniversary of the founding of the party." This will lead to a pattern of cost support and a decline in supply, which will support market prices in a disguised manner in the off-season. Therefore, as far as market trends are concerned, upward adjustments will still be made as expected. But it is worth noting! The market situation from April to May also gives us vigilance. Although the "reality" and "expectation" will be stronger, they should not be too fast. Otherwise, the upstream and downstream will be disconnected, and there will be substantial adjustments. In the end, the strength will be greater. Space, there are still opportunities in the second half of the year.

Later market concerns:1. Electricity consumption and gaps. In the past years, the grid load was too large, but this year it is lacking! (For the classification of electricity consumption, smelters>electric furnaces>manufacturing); 2. With the beginning of universal immunization abroad, the export market is expected to decline, followed by the adjustment of market inflation peaking; 3. The supply of hot rolling remains There is room for new additions, especially from July to August. During the off-season period, it is recommended to reasonably control inventory to reduce risks, and use financial tools to avoid risks when appropriate.