SMM: rebar sales hit a record high in the second quarter, coupled with strong support from the cost end of iron ore raw materials, rebar prices have continued to rise in recent months. However, a few days ago, torrential rains occurred in many parts of the south, resulting in the suspension of many projects, weakening demand in the rebar market and an oscillatory correction in prices. We believe that with the end of the rainy season and the rebound in demand across the country, rebar prices are still easy to rise and difficult to fall under the support of continued strong iron ore prices.

Increase income but not profit in iron and steel industry

Recently, due to the influence of the rainy season, the downstream terminal demand has weakened, while some steel mills are on the edge of loss, so some steel mills have stopped production and maintenance, resulting in a decline in rebar output. However, with the end of the rainy season, the impact of floods on the southwest and south-central regions continued to weaken, the entry of raw material scrap into the steel plant and the sales of finished materials gradually returned to normal, the downstream demand gradually improved, and the operating rate of steel mills rebounded slightly. As of July 24, the operating rate of steel mills across the country has rebounded to 70.19%, and the operating rate of blast furnaces in Tangshan Steel Plant has rebounded to 84.92%, still exceeding the level of the same period in previous years. On the whole, the overall national rebar output is also gradually picking up. Mysteel survey data show that the weekly rebar output of 62 independent EAF steel mills across the country increased by 6.70%, an increase of 3.25% over the same period last year. However, although the output of the iron and steel industry has rebounded and the income of steel mills has increased, the profits of most steel mills have hovered at the loss line. As of July 24, statistics show that the average profit of rebar production is-1 yuan / ton. Taking into account the current spot market steel mills inventory de-inventory pressure continues to reduce, as well as steel mills no profit state, steel mills have a strong willingness to raise prices.

Steel mills have a strong willingness to raise prices.

The terminal demand of rebar market is mainly concentrated in real estate and infrastructure. In terms of real estate, a few days ago, data released by the National Bureau of Statistics showed that real estate investment continued to pick up, and new construction became regular month-on-month, with a strong supporting basis for downstream demand. In addition, the central government stressed support for a new type of urbanization, which will continue to improve the demand for rebar and support steel prices.

In terms of infrastructure, due to the epidemic affecting the construction and new construction in the first half of the year, we will speed up the construction of major projects in the second half of the year. Recently, with the flood in many places in the south, the state pays more attention to the investment in water conservancy construction and urban underground pipe corridor construction. A few days ago, the Information Office of the State Council held a regular policy briefing of the State Council, which proposed that 150 key water conservancy projects will be arranged, with a total investment of about 1.29 trillion yuan, leading to direct and indirect investment of 6.6 trillion yuan. So far, the National Development and Reform Commission has issued a cumulative investment of 52.8 billion yuan in the central budget for major water conservancy projects in 2020 to support various localities to speed up the construction of projects. Overall, infrastructure projects will continue to increase the intensity and speed of implementation, with a strong support for steel demand.

Due to strong terminal demand, iron ore port inventories have remained at a low level in recent months, the epidemic in Brazil has continued to worsen, the epidemic in Australia has rebounded again, and the market is expected to tighten iron ore supply. In addition, the concentration of mineral resources in port trade is high, and large traders hold most of the mainstream goods, and their strong willingness to raise the price leads to the high cost of rebar upstream raw materials. Moreover, due to the withdrawal of backward coke production capacity and the suppression of production by environmental protection, the supply is phased tight, coupled with the shortage of scrap resources and the high output of hot metal and steel this year, the demand for iron ore raw materials in steel mills increased compared with the same period last year.

Generally speaking, the profits of most steel mills are on the edge of the loss line, but due to the strong downstream demand and the strong price of upstream raw material iron ore, steel mills have a strong willingness to raise prices, so rebar will still be easy to rise and difficult to fall in the medium and long term.

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