[SMM analysis] the operating rate of blast furnace approaches its all-time high in May, and may peak and fall in June.

According to SMM research, the blast furnace operating rate in May was 90.9%, an increase of 4.5% over the previous month, approaching an all-time high of 91.8%. It is estimated that the room for further increase in June is very limited, or it will peak and decline.

According to the SMM cost model, the average profit of long process steel mills in May is about 280yuan / ton, so the production enthusiasm of steel mills is generally high. However, since June, mineral prices and coke prices have risen more than expected, especially mineral prices have increased by more than 10% compared with the average price in May, while steel prices have risen by less than 3% in the same period. Steel mills' profit margins have been greatly reduced, and the new overhaul of steel mills has increased, and the reduction is greater than the increment of overhaul and resumption of production. It is expected that there will be an inflection point in the operating rate of blast furnace in June.

Since June, the southern region has entered the Meiyu season, which has restrained demand, the spot market terminal pick-up has decreased, transactions have weakened, and there has been a slight correction in the futures market, but SMM believes that demand has not peaked. In mid-late June, with the weather improving, demand recovery is expected. Considering that the supply is already increasing and is approaching the inflection point of production, we expect that there is still room for steel prices to rise in June.

Fig. 1 the operating rate of blast furnace is close to the all-time high

Source: SMM Steel

Specific research feedback:

Steel plant A (South China): the gross margin is good, there is no maintenance plan in the later stage, although the short-term rainy days affect the release of demand, but the demand is really good this year.

Steel plant B (East China): the blast furnace starts normally, and the output of material decreases slightly, but the price is easy to rise and difficult to fall, so it is optimistic about the demand.

Steel plant C (East China): it was overhauled at the beginning of May and is now back to full production. With the end of the raw materials, the price can not go down.

Steel plant D (southwest): the output is the same as the previous month, the rainy season has an impact on demand, but there is no production reduction plan to ensure the annual production target.

Steel works E (Northeast): be cautious about the future. At present, the northern building materials market can basically digest.

Steel mill F (Huazhong): cautious about June market. The blast furnaces are all open in June.