SMM News: last week, rebar futures prices rose strongly, 1910 contracts broke through the May high to a new high in the year. The author believes that the production restriction policy in Tangshan area is the core driving force of the recent increase in the price of rebar, and the specific implementation of the production restriction policy is the key factor affecting the future market. Based on the analysis of the evolution of production restriction policy, demand change, inventory status and valuation, profit and other indicators, the author thinks that the rebar futures price will be supported and can still be done after the correction.
Supply contraction caused by production restriction
On June 23, the Tangshan Municipal Government issued the notice on stopping production of Iron and Steel Enterprises in the whole City, requiring 6 steel mills with performance evaluation of Class A to limit production by 20%, and other iron and steel enterprises in the city to limit production by not less than 50%. The blast furnace should stop production, and the execution time will be from the announcement to the end of July. The emergence of this policy is the core inducement of the recent strong rise in rebar futures prices.
However, on July 1, the Tangshan Municipal Government issued a notice on "strengthening the Control Plan for the Prevention and Control of Air pollution in July". Compared with the "notice on stopping production restrictions for Iron and Steel Enterprises in the whole City," it can be found that the requirements for some iron and steel enterprises to stop production limits have been relaxed, which is also an important reason for the pullback of rebar futures on July 2. In a word, the change of Tangshan production restriction policy is still the focus factor of the market in the near future. Although the intensity of production restriction has decreased, the production restriction policy itself will still cause supply contraction, which will still play a supporting role in the price of rebar.
Medium-term consumption remains resilient
The change of demand side is an important guide to the trend of rebar market, and the short-term demand change mainly pays attention to the characteristics of seasonality. According to the seasonal characteristics, the annual consumption of rebar in April and May is at the peak level of the same year, and after June, the demand for rebar will go down. According to the trading volume data of national building materials traders, in June, the daily average trading volume of building materials was about 191500 tons, significantly higher than the daily average of 177900 tons in June last year and slightly lower than the daily average of 197200 tons in May this year. In other words, rebar demand to maintain high toughness, this year's demand is not only higher than last year, and since June the off-season effect is not obvious.
Medium-term demand for rebar depends on real estate and infrastructure construction. At present, the real estate industry still shows the characteristics of high toughness. Data show that real estate investment rose 11.2% from January to May compared with the same period last year, while new housing starts grew by 10.5% and housing construction area grew by 8.8%. Although the growth rate of real estate investment and the area of new housing starts have slowed down from the previous month, they are still relatively high.
In addition, infrastructure construction is likely to accelerate, the previous issue of the "notice on the issuance of special local government bonds and project financing work" has also triggered a sharp rise in rebar futures. The intention of the management is to stimulate economic growth through "making up for the shortcomings of infrastructure", and the implementation of this policy will stimulate the growth of infrastructure investment. The increase in real estate and infrastructure investment means that rebar demand will remain resilient in the medium term.
Inventory pressure may be reduced
Inventory data can be used as evidence of changes in the supply and demand side, with inventories in thread mills of 2.1973 million tons, social inventories of 5.6631 million tons and total inventories of 7.8604 million tons, up 18.2 per cent from a year earlier. In absolute terms, the current inventory level is the highest in the same period of nearly four years; in terms of change, inventories began to accumulate in mid-June, with a cumulative increase of 330000 tons in two weeks. From the point of view of absolute quantity and change, the current rebar inventory data are negative factors, but the Tangshan production restriction policy will cause steel supply contraction and reduce the inventory pressure of rebar.
The valuation is in a reasonable range
Through the carding of supply, demand and inventory data, the author believes that the rebar price will continue to be strong, but to what extent the current futures price reflects this strong fundamentals, we need to combine the basis to judge. Judging from the basis, the current rebar futures price is still in the discount pattern, the rebar 1910 contract is about 3% more than the spot discount, which is obviously lower than the discount level of 1810 contract and 1710 contract in the same period of history. In other words, the discount pattern of futures price shows that the futures price is undervalued than the spot price, but the discount range is smaller than that of the same period in history, which indicates that the futures price is overvalued relative to the same period of history. Generally speaking, the current rebar futures price valuation is in a reasonable range, the future will be supported, after the correction can still do long.
(by Southwest Futures)