[SMM Hot Volume] comparison of prices in the fourth quarter of 2018-2019-spot prices may be difficult to fall below the 1000 yuan mark

From the chart above, the trend of spot prices in September 2018 and 2019 shows that the downward trend has been basically consistent in the past two years, and the decline from September to October was about 200 yuan / ton. However, in November, a wave of panic erupted in the market, causing a large number of traders to sell goods at low prices, accelerating the fall in spot prices. However, pessimistic expectations have been released ahead of schedule this year, and some traders have reduced their warehouses at low prices since September, so even if subsequent production continues to rise, it is difficult to trigger a large area of low-price panic selling within market expectations. therefore, the trend of spot prices is still largely determined by the fundamentals of supply and demand. SMM analyzed the fundamentals of supply and demand in the fourth quarter compared with the same period last year.

Production line of steel plant:

According to incomplete statistics from SMM, new production capacity was 45.9 million tons in 2018 and 65.58 million tons in 2019, an increase of 42.88% over the previous month, so the supply pressure has continued to be on the high side so far this year (most of the new capacity was put into production in the third and fourth quarters). At a time when supply and demand fundamentals have exacerbated imbalances, spot prices have also been suppressed and generally continue to be lower than in the same period last year.

In terms of costs and profits of steel mills:

Estimated by SMM, last year, because the spot price is relatively high, and the raw material end iron ore price is on the low side (the ore price is 513yuan / ton in the same period last year), so the profit of the steel plant is about 732yuan / ton in the same period, the steel mill production enthusiasm is on the high side, the output also increases, therefore causes the fourth quarter supply end pressure to increase, causes the spot price to accelerate to fall. This year, due to the low spot price, and the high price of iron ore at the end of raw materials (ore price is about 732 yuan / ton), the profit of hot rolling mill continues to be on the low side, and even appears the phenomenon of loss. Therefore, the production enthusiasm of steel mills is not high compared with last year, suppressing the release of steel plant production capacity, resulting in supply-side pressure has not yet risen significantly this year.

Hot rolling inventory:

According to SMM inventory data statistics, since October this year, the hot rolling mill social library gradually lower than the same period last year, the overall inventory pressure has eased compared with the same period last year. In addition, in the near future, environmental protection and production restrictions continue to exert strength and rigid demand still exists, so the reduction of storage in the later stage may still be hopeful. Therefore, if the decline continues, it is expected that spot prices in the absence of negative blow and pessimistic early release of the situation, it is difficult to appear in November last year's sharp fall.

Macroeconomic aspects:

Since the second half of 2018, Sino-US trade frictions have been continuous, and have been in a state of repetition, and so far there has been no substantial progress. Therefore, as far as the macroeconomic environment is concerned, it is basically in a relatively consistent environment with the same period last year. That is, the performance of the manufacturing industry is sluggish, demand in terminal industries such as automobiles and household appliances continues to be weak and exports are greatly restricted.

Environmental protection and production restriction:

According to SMM records, in November 2018 on the "Tangshan 2018-2019 autumn and winter iron and steel industry off-peak production plan", under the general policy of banning "one size fits all", the Tangshan production restriction plan combines policy encouragement and support factors (partly participating in capacity relocation, withdrawal, and reduction of production restriction tasks for steel mills for winter heating). The proportion of production restriction of blast furnace capacity in the city is only 31.55%, and the intensity of production restriction is relatively loose. Supply pressure continued to increase in the fourth quarter. This year, according to the requirements of the latest "Tangshan Iron and Steel Industry off-peak production Plan for the fall and Winter of 2019-2020", the calculation by SMM is more stringent than the same period last year, and this part has not yet included the recently released environmental protection and production restrictions in various regions. Therefore, as far as environmental protection and production restriction is concerned, the intensity of production restriction this year is more stringent than that of last year, and the output of steel mills will also be further suppressed. Therefore, if the recent environmental protection production restrictions and autumn and winter production restrictions can be strictly implemented in place, it will have a certain hedging effect on the new production in the fourth quarter and ease some of the supply pressure.

In summary, in terms of supply and demand fundamentals, it is expected to remain in a state of supply increase and demand decline in the fourth quarter. Therefore, the spot price in the case of the intensification of the contradiction between supply and demand, the overall still shows a downward trend. However, compared with the same period last year, it is gratifying that environmental protection and production restrictions have indeed become more stringent this year. If the restrictions are strictly enforced, the fundamental pressure on supply and demand will be alleviated compared with the same period last year, and the decline in spot prices may slow down at that time. At the same time, pessimistic expectations of early release, so the fourth quarter of this year, year-on-year decline is expected to narrow.