Crude oil continues to fall sharply. What is the impact of the plan to stop production and limit production in many steel mills on the black system?

By the end of the afternoon of July 20, some varieties in the domestic commodity futures market had fallen sharply. Rubber, low-sulfur fuel, styrene and beans fell by more than 5%; rubber, low-sulfur fuel, styrene and beans fell by more than 4%; pulp, fuel and PTA fell by more than 3%; asphalt, Shanghai nickel, LPG, Shanghai silver, red dates, glass and apples fell by more than 2%; coke and coking coal rose by more than 2%; and thermal coal, eggs and PP rose by more than 1%.

With worries, crude oil futures continue to decline.

Over the weekend (July 18), OPEC + issued an official statement saying that the major oil-producing countries had reached a preliminary agreement. Analysts believe that although this move avoids the collapse of the production reduction alliance, because a number of oil-producing countries have increased their total production baseline to 1.63 million barrels per day, which is more than the original benchmark of 600000 barrels per day on the one hand in the United Arab Emirates, this has led to the rapid loss of the advantage of tight supply on the supply side, and the growth of crude oil production in the future has been unstoppable. One of the engines of rising oil prices is less supply-driven and needs to be driven by consumption to provide more power. however, the more contagious strains of novel coronavirus, Delta and Ramda, have spread in many countries and regions, weakening the potential for future crude oil consumption.

The weakening outlook for supply and demand caused the overnight international oil price to plummet by more than 6 per cent. The US WTI crude oil futures price fell from 71.09 US dollars per barrel to 66.53 US dollars per barrel, closing sharply down more than 7 per cent, while Brent crude oil futures fell from 73.07 US dollars per barrel to 68.75 US dollars per barrel, closing down 6.21 per cent. The negative side spread to the domestic crude oil futures market, and the SC2109 contract fell 5.40% to 413.5 yuan per barrel.

Zheng Mengqi, a researcher at Zhonghui Futures Energy, believes that the results of the OPEC + meeting finally hit the ground, increasing production by 400000 b / d every month from August until the active production reduction of 5.8 million b / d is fully resumed. and from May next year, the production reduction baseline of some oil-producing countries was raised, the new benchmark for crude oil production reduction in the United Arab Emirates was raised by 332000 b / d to 3.5 million b / d, and Iraq and Kuwait were raised by 150000 b / d respectively. Saudi Arabia and Russia each raised 500000 barrels a day. These oil-producing countries have plenty of spare capacity, such as Angola and Nigeria, where the capacity to increase production is relatively limited, and raising the production reduction baseline can achieve the goal of releasing idle capacity more effectively. But it also means that crude oil supply will increase sharply in May next year, and the long-month futures price of crude oil is lower than the spot market price, which may prevent US oil producers from increasing production. Therefore, the supply side is still OPEC + in charge of pricing.

At present, oil consumption is at its peak in the northern hemisphere in late July. According to statistics, as of the week of July 9, the US refinery operating rate remained at 91.80%, down 0.4% from 92.20% the previous week, although it was higher than the recent seven-year average of 91.40%. According to the performance of the US refinery operating rate from 2014 to 2020, it is found that there is very limited room for further substantial growth in the later period, and after late August, the operating rate will decline. Because the peak season of oil consumption is coming to an end. In other words, the demand increment brought by the peak season of crude oil consumption in the future is relatively limited and the follow-up is weak. In terms of inventories, US crude oil inventories stood at 437.6 million barrels in the week ended July 9, falling for the eighth consecutive week, down 7.896 million barrels from a month earlier, down 17.70% from a year earlier, and about 18.296 million barrels less than in the same period in 2019. "judging from the trend of inventories in the past eight years, after late August, the pace of de-stocking of crude oil stocks will also slow down and bottom out, re-entering the accumulation stage. In the face of the new production reduction agreement implemented by OPEC+ oil-producing countries in August, monthly production has increased by 400000 b / d from a month earlier, and the inflection point of US commercial crude oil inventory accumulation in the future may be slightly earlier than in previous years. " Chen Dong, a senior analyst at Baocheng Futures Energy Co., Ltd., said.

Chen Dong believes that although OPEC+ oil-producing countries have reached a preliminary agreement to avoid the collapse of the production reduction alliance, the worst-case scenario will not happen, but the momentum of oil-producing countries to increase production has been irresistible. At present, although the crude oil production benchmark adjustment of oil-producing countries will not affect the output of the year, starting from 2022, the production baselines of several oil-producing countries will be formally raised, which means that the supply pressure of crude oil will increase significantly next year, superimposed by an increase of 400000 barrels per day per month. the advantage of production reduction is gradually losing. Thus it can be seen that the expectation of crude oil supply has become certain, while the expectation of demand still has many variables. The main influencing factor is that the epidemic is still fermenting, the global vaccination effect is uneven and slow, and the stronger transmission and infectivity of the new mutated virus Delta and Ramda strains will cause the global epidemic situation to fall back into crisis, thus inducing crude oil demand to shrink again, posing new challenges and pressure on oil prices. On the one hand, it is the deterministic supply of crude oil production, on the other hand, it is the prospect of crude oil demand with variables and challenges, the supply and demand structure of the oil market is weakening, and the balance sheet of supply and demand is also faced with the possibility of changing from the gap between supply and demand to excess supply and demand.

What is the influence of production control on black system in Jiangsu Steel Plant?

On Tuesday, the news of "production control of Jiangsu Steel Plant" aroused widespread concern in the market, and the trend of black products was also affected to a certain extent. It is understood that at present, all steel enterprises in Jiangsu Province have received a clear target that the output of this year will not exceed that of last year. According to the feedback of relevant enterprises, they will also calculate the output data from the financial caliber in the later stage, and strictly control the output of the whole province this year. At present, some steel mills in the province have begun to arrange production reduction plans, but in view of the large differences in production reduction in the later period, the pace of production reduction in steel mills will also be different.

"in fact, we can find that since the second half of the year, there have been expectations of production restrictions in steel mills, and news about production restrictions has been emerging. However, this piece of information will have a greater impact on the market: first, Jiangsu is an important steel production province in China, ranking second among the provinces in the country, second only to Hebei; second, the output of Jiangsu Province has a higher year-on-year growth rate in the first half of the year, which means that more production needs to be reduced in the second half of the year, and the closer to the end of the year, the greater the pressure to reduce production. Therefore, once the production restriction of Jiangsu Steel Plant is implemented, it means that "production restriction of steel mills in the second half of the year" will come into reality from the expectation, and steel prices will continue to be driven up. " Xia Xuezhao, analyst of Southwest Futures Black Department, said.

Zhao Yi, an analyst at Sinosteel Futures Black Department, told Futures Daily that after entering the second half of the year, the task of "reducing crude steel production" was switched to the fast lane. Recently, many regions and many steel mills have reported plans to stop production and limit production one after another, which has also become an important driver of lumber price consolidation. According to the data just released by the National Bureau of Statistics, the national crude steel output in June 2021 was 93.8752 million tons, an increase of 1.5% over the same period last year. The cumulative output from January to June was 563.3265 million tons, an increase of 11.8% over the same period last year. From a provincial point of view, Jiangsu Province produced a total of 63.5806 million tons of crude steel from January to June, an increase of 12.77 percent over the same period last year, ranking second in output; from January to June, the crude steel output of Hebei, Jiangsu, Shandong, Liaoning and Shanxi provinces totaled 306.536 million tons, accounting for 54.41 percent of the country's total output. According to the base crude steel output of Jiangsu Province in 2020, if the plan of not exceeding last year is realized, the total output in the second half of the year will be 57.5014 million tons, with an average monthly output of 9.5836 million tons. Considering that it is already late July, if there is no significant change in July production, which is equivalent to 10.4103 million tons in June, the average monthly output from August to December will be 9.4182 million tons. Compared with the average output of 10.5968 million tons in the first half of the year, the monthly output decreased by 1.1786 million tons, or about 11%.

"the difficulty now is the rise and fall of output, profits and prices. Throughout the first half of this year, both the national output and the output of Jiangsu Province are extremely high.After rough production, the rapid compression of output in the second half of the year to offset the previous growth is bound to lead to great changes in the supply and demand structure of various varieties in the industrial chain. benefit more into wood, bad for raw materials. And this feature has been reflected this month, steel mill profits rose for three consecutive weeks, from the micro-loss or profit-loss edge to return to positive profit. Profit means a stronger incentive to increase production, but it will not happen again in the second half of the year when other provinces rapidly increased production to fill the gap after production cuts in Tangshan and Handan. " Zhao Yi said that the NDRC and the Ministry of Industry and Information Technology have carried out "looking back" inspection work on steel production capacity in 2021. According to information circulated in the market, the requirements for production reduction in the second half of the year are relatively strict, and some steel companies have made promises to reduce annual production. In addition, the periodic imbalance between supply and demand can easily lead to soaring prices, but "price protection and stable supply", including the National standing Committee, the National Development and Reform Commission, the Ministry of Industry and Information Technology and other ministries and commissions, is also the focus of the government's work in the second half of the year. Construction steel downstream involves real estate, infrastructure and other social livelihood projects, price surge or large fluctuations will have a negative impact on the real economy. Therefore, the steel price will operate between the output of reduced crude steel and the stable supply of guaranteed price, showing an oscillatory operation.

Xia Xuezhao believes that, in fact, the trend comparison between different varieties and different contracts of the same variety has been carried out in accordance with the logic of limiting production in steel mills in the second half of the year. First of all, since July, the trend of finished product prices has been significantly stronger than that of iron ore. The cumulative increase of the main contract of rebar futures is more than 10%, while that of the main contract of iron ore futures is only 5%. The rebar 2110 contract and the rebar 2201 contract are basically flat, while it is common in previous years that the far-month contract is obviously discounted compared with the recent month, which means that the 2101 contract is supported by the expected production limit. Third, there is a significant increase in the iron ore 2109 contract compared with the iron ore 2201 contract. Market participants believe that the impact of production restrictions on iron ore prices in the short term is not obvious, but the later the time is, the more likely it is that iron ore demand will be suppressed.

"when it comes to investment strategies, investors should still pay close attention to policy changes. What needs to be reminded is that in the case of a large cumulative increase in steel prices in the first half of the year, the price control policy once led to a substantial correction in market prices in the short term, and if production restrictions push up steel prices again in the second half of the year, similar control measures may still occur. " Xia Xuezhao said.