Steel prices jump up and down, optimistic about the 2013 market

In the past two weeks, steel prices have jumped up and down. First, as the weather turned cold, the futures main contract of the 1305 contract fell by nearly 180 yuan from its high point, with a 5% decline. At the same time, the spot market price also fell by nearly 200 points from north to south. Then on the first trading day in December, the steel price rebounded strongly, with the main force 1305 rising more than 2% a day.

We believe that the rebar price drop is a normal seasonal adjustment, with limited time and space for decline, and it is still in the steel price adjustment period. In the first quarter of 2013, there will be a rise in steel prices driven by consumer banks and traders.

The daily output of crude steel is still at a high level, and supply pressure is increasing. In early November, the average daily output of crude steel in China reached 1.957 million tons, an increase of 1.6% from the previous month. Since September, steel prices have been on the rise. The adjustment of steel prices started in late November. Therefore, the capacity utilization rate of steel mills should be maintained at a relatively high level in the near future. In December, the end of the mill's maintenance at the end of the year and the drop in steel prices may cause a slight decline in production, but overall, the supply of steel remains at a high level. As the weather turns colder day by day, parts of the northern part of the country have been freezing cold and heavy snow has flown. Construction projects in the Midwest and Northeast China will stop construction due to weather conditions. In other words, when supply is at a high level and demand shows a seasonal decline, market supply pressure will increase, and steel prices will be adjusted seasonally.

Into the winter, ore prices are adjusted in stages. Since the first two months, the ore prices have been relatively firm due to factors such as the completion of stockpiling of ore after the completion of ore clearing and the closure of some small mines before the 18th National Congress. At present, during the off-season demand for steel products, due to the weakening of terminal demand and the maintenance of steel mills at the end of the year, the purchase of ores by steel mills has been declining, and the prices of raw materials such as ore will have been adjusted. Although the ore inventory in the port has been declining, the ore traders have not made any money since this year. Once the ore price drops, it will threaten the capital chain of traders. With the approach of the end of the year, the market's funds are becoming increasingly tense. All these factors will exert pressure on the price of ore, which will in turn be detrimental to steel prices.

In the medium to long term, the price of ore will also decline. China's ore prices as the global marginal ore price is about 100 US dollars / ton, the current domestic is considering to mine to reduce taxes and fees by 10%, which can at least make China's mine production costs reduced to 90 US dollars / ton. Therefore, only from this point of view, the ore price also has some room for decline.

The low social inventory will benefit the stock market in the first quarter of next year. Although there was a slight increase in steel society stocks this week, 11.95 million tons of steel inventories and 4.98 million tons of rebar stocks are all lower social stocks compared to the same period in recent years. When winter comes to spring, even if seasonal consumption resumes in the first quarter of next year, end-users and traders will be able to make up their inventory in turns. The price of steel will certainly rise, while the lower social inventory will only increase the price increase. What's more, some of the infrastructure projects approved by the government in the second half of 2012 will not be formally started until the first half of 2013, which is also good for the first half of next year. Although steel prices will rise in the first half of next year, we expect that the increase will be limited. From the data, from January to October 2012, China's crude steel production increased by 2% year-on-year, assuming that China's economic growth rate in the first quarter of 2013 was 7.8%, even if the growth rate of crude steel production rose by about 5%. The average output of crude steel is only about 2 million tons, equivalent to an annual rate of 7.3 billion tons. According to the 2012 production capacity, the annual capacity utilization rate is only about 79%, and there is still a large surplus of production capacity. It can be seen that China's steel supply potential is far greater than the room for growth in demand, steel prices have risen in the market all belong to the stage of limited room for rising prices.

In summary, the steel market is a market with oversupply, and the probability of its price falling is greater than the probability of rising, and the time and magnitude of price increase will be limited. When the relative change in market demand is relatively small, the adjustment of steel prices is mainly caused by the inventory cycle, and the role of seasonal factors in market changes is also increasingly significant.