The demand for steel is not as good as expected. There is limited room for coke prices to continue to rise.

SMM Network News: after the National Day holiday, affected by the rebound in steel prices, Shanxi back to coke production capacity and restrictions on Australia's coal import rumors and other factors, coke 2101 contract out of a strong rebound market. We believe that the current rise in coke prices has basically reflected the expectation of supply contraction, and the trend in the later period depends more on changes on the demand side, while in the case that the recovery of steel demand is less than expected, coke prices are expected to continue to rise with limited space. In the later stage, you can pay attention to the main 2101 and 2105 contracts for high short selling opportunities.

Steel demand continues to weaken

Since the beginning of June, the profit trend of steel coke has continued to deviate. at present, the profit of long-process rebar and hot coil is about 150 yuan / ton, while the profit of coke has been above 400 yuan / ton, and this state has been going on for 4 months. The last round of coke profits were higher than those of mature wood for a long time from August to December 2016, mainly due to the sharp rise in coking coal prices caused by the coal production restriction policy of 276 working days, which pushed up coke prices. Judging from the ratio of rebar to coke, there have been two long rounds of decline since 2016, one from April to December 2016 and the other from May to November 2018. The first round of decline is due to the same reason as profit deviation. The second round of decline is mainly due to strong environmental production restrictions. At present, the ratio of rebar to coke 1.7 is close to the low level in the past two years. It is worth noting that both profit and spot ratios have been repaired since then. Therefore, whether the coke price can continue to rise in the later period depends to a large extent on the change of steel price.

In terms of rebar, we can see that the performance of real estate and infrastructure data in September is lower than expected, and after entering late October, the demand for rebar continues to weaken. Based on a 10 per cent year-on-year growth in apparent demand for rebar and the same output as the same period last year, rebar inventories will still be 700000 tons higher by the end of December than in the same period last year, and high inventory pressure is likely to run through the winter reserve this year, so it is unlikely that rebar prices will rise sharply in the fourth quarter. Deviations in rebar, coke trends and profits need to be repaired to a greater extent by falling coke prices.

The output of hot metal is lower than that of the previous month.

Under the stimulation of high profits, the overall capacity utilization rate of coke enterprises has shown an oscillatory rebound trend since April. As of October 23, the capacity utilization rate of 230 independent coking enterprises across the country was 77.56 percent, 3.55 percentage points higher than the same period last year, and monthly output was also growing for three consecutive months compared with the same period last year. However, this year's high pig iron production has kept coke in a tight supply. Based on the monthly data of the Bureau of Statistics, we estimate that the gap between coke supply and demand in the first three quarters is about 23 million tons, of which only the gap between supply and demand is positive from March to April, which is the main reason why coke prices have continued to strengthen since April.

Generally speaking, the tight situation of coke supply continues, but the margin of supply and demand has begun to change. On the one hand, the production enthusiasm of coke enterprises is not reduced; on the other hand, in the case of high inventory and low demand, the start-up of steel mills began to decline. In addition, from the estimation of the weekly balance of supply and demand, we know that the growth rate of demand is still higher than that of supply, but the gap between them has begun to narrow, indicating that marginal improvement has begun to appear between supply and demand. After the fourth quarter, many places issued a heating season production limit policy, superimposed on the current situation of high inventory and low demand of finished wood, and it is expected that the month-on-month decline of hot metal output will continue in the later period. Although coke supply will also be affected by environmental protection policy, considering the difference in profit level, the decline of hot metal output will exceed that of coke, and the capacity utilization ratio of blast furnace and coke oven will continue to decline.

There is a differentiation in inventory structure.

At present, the inventory level of the coke industry is still low. As of October 23, the inventory of the whole industry chain was 7.1463 million tons, down 22800 tons from the previous week and 2.3877 million tons lower than the same period last year. However, the inventory structure continued to diverge, with the latest coking plant inventories continuing the previous decline, while steel mill inventories rebounded 43000 tonnes to 4.493 million tonnes month-on-month. In fact, the ratio of steel mills to independent coking plants has oscillated since late July and has now reached 17.13, close to a high in the same period last year. If the decline in hot metal production is expected to be realized gradually, then steel mills' demand for raw materials is bound to slow down. At that time, there may be a slowdown in the replenishment of steel mills and an increase in inventory in coking plants. If the inventory of coking plants begins to increase, the supporting effect of low inventory on coke prices will also be weakened.

The new production capacity has been put into operation one after another.

The previous analysis of coke prices is mainly from the perspective of demand, inventory and profits. in fact, since October, the phased dislocation of capacity loss and new capacity is also the reason for the rise in coke prices. However, this situation will be alleviated as new capacity is launched one after another. According to statistics, as of October 20, a total of 3.4 million tons of coke production capacity has been shut down in Taiyuan, but 2.45 million tons of new coke production capacity has been put into operation from the end of October to the beginning of November, while some enterprises will produce coke in November. If you take into account the decline in hot metal production, then the actual impact of capacity removal policy may not be significant.

In addition, we believe that in the case of persistently high profits of coke enterprises, the actual effect of capacity removal may not be as good as expected. However, the coke main contract and spot basis continues to narrow, indicating that the disk has reflected the impact of capacity policy to some extent, so if there is no new favorable support in the later stage, the coke disk price is more likely to fall.

Operation suggestion: Coke 2101 contract tries to sell short at every high of 2150mur2200 yuan / ton, and stop loss can be considered if it falls below 2250 yuan / ton, and the target is 1900Mui 1950 yuan / ton.

Arbitrage suggestion: considering the expectation of import restrictions on coking coal in the fourth quarter, and if the coke production capacity is not as expected, it will be good for coking coal, you can try to choose a machine to short the coking profit, intervene above 1.6, break 1.65 stop loss, and the price target range is 1.5ml 1.55.