The effect of limiting production in heating season is obvious. The social inventory of iron and steel is lower.

Recently, many places in the north have started to limit production in winter, and the effect of steel destocking is obvious. The latest CISA data show that in early December, the social inventory of five major varieties of steel in 20 cities was 8.27 million tons, a month-on-month decrease of 380000 tons, or 4.4 per cent. Industry insiders said that with the gradual return of automotive steel demand, manufacturing steel demand will gradually recover, steel demand is expected to continue to improve in the later stage.

It is obvious to go to the library.

On December 12, CISA released a ten-day report on social inventory monitoring of steel in the first ten days of December 2021. In the first ten days of December, inventories in the seven major regions of the country continued to decline month-on-month. Of this total, central China decreased by 110000 tons from the previous month, or 9.1% from the previous month, making it the region with the largest reduction.

From a variety point of view, the social inventory of the five major varieties, in addition to hot-rolled coil, cold-rolled coil, medium and thick plate, wire rod and rebar ring ratio, have decreased in varying degrees. Among them, rebar and wire rod are the ones with large reduction.

It is worth noting that compared with the beginning of the year and the same period last year, steel social inventory still rose to varying degrees. In terms of overall inventory, in early December, the social inventory of five major varieties of steel in 20 cities increased by 670000 tons over the same period last year, an increase of 8.8 per cent over the same period last year.

Han Weidong, vice president of Youfa Steel Pipe Group, said steel supply is expected to fall by 60 million to 70 million tons this year, with steel production up 11.8 per cent in the first half and more than 10 per cent in the second half of the year. Social inventory and steel mill inventory continue to decline, indicating that the current supply is less than demand, steel mills will certainly replenish inventory in the future, which creates favorable conditions for winter storage.

Weak supply

From the point of view of the supply side, recently, the northern steel-producing areas have entered the winter production limit cycle one after another. The operating rates of blast furnaces and electric furnaces all over the country have dropped sharply. Among them, the operating rate of blast furnace is less than 50%.

Shengang Securities said that recently, the regulation and control measures of blast furnace and sintering in Tangshan area have been strengthened, the utilization rate of production capacity has been reduced to 53.51%, pollution weather warnings have been issued in many places in the north, high overhaul conditions of steel mills have been maintained, and the weak trend of supply side is expected to continue. With the implementation of the policy of limiting production in the Winter Olympic Games and the heating season, the supply side will remain weak.

On the demand side, Guotai Junan research report shows that the total steel inventory is rapidly removed, and the total demand continues to pick up. Under the policy constraints of "double carbon", double control of energy consumption and off-peak production limit in the heating season, the steel supply remains weak, the steel price center will remain at a higher level, and the logic of the industry's long-term boom remains unchanged.

The above research paper pointed out that with the impact of lack of core on the automotive industry gradually faded, the demand for automotive steel has gradually returned. As the impact of dual energy consumption control and power restriction policy on the manufacturing industry gradually fades out, it is expected that the demand for steel used in the manufacturing industry will gradually recover. In terms of construction steel, the current demand maintains a low shock trend, infrastructure construction may pull the demand for construction steel upward in 2022, and the demand for construction steel will gradually pick up in the later period. Overall, the steel demand is more resilient, and the later demand is expected to continue to improve marginally.

In addition, some steel mills have recently stopped production and overhauled, and the overhaul time is about 10 days.

Face the test

Qu Xiuli, vice president and secretary-general of the China Iron and Steel Association, said that the first major change in the steel industry in 2021 was a major change in the country's industrial policy, which increased controlled production while controlling production capacity. Second, in terms of total quantity control, the Ministry of Finance and the State Administration of Taxation twice cancelled the export tax rebate for some iron and steel products this year. After the reduction in steel production, exports were reduced to meet domestic demand. Third, the double carbon goal of carbon peak carbon neutralization, which must be achieved in front of the iron and steel industry. The above three policy factors are a great test for the iron and steel industry.

From the perspective of profits per ton of steel, Huaan Securities Research report shows that at present, steel prices have risen slightly, and profits have rebounded to the highest point of the year. The price of double coke has stabilized, the social inventory has been accelerated, the profitability of the industry has been maintained well, and the fundamentals of supply and demand can support steel prices in the short term. After the profits of steel mills have been repaired, the enthusiasm of steel mills to resume production will be increased in the case of expected improvement in real estate demand.

From the perspective of performance, Shengang Securities Research report said that steel profits are running high, cost collapse continues to raise the valuation of the industry as a whole, real estate infrastructure investment is expected to improve significantly, and it is recommended to pay attention to the inflection point of investment early next year. The performance of iron and steel enterprises in the fourth quarter is expected to continue to differentiate, anti-cycle, stainless steel processing enterprises with growth attributes have significant advantages. In addition, the southern plate steel enterprises with less pressure on energy consumption management and control are expected to achieve better results.

SMM believes that the overall supply of the steel industry exceeds demand in 2022. The demand of the real estate industry fell by 810%, the contribution of infrastructure demand was converted to about 3.5%, the total demand fell by 4.5%, and the supply side converged by about 3%. The judgment of the rebound from the end of the first quarter to the beginning of the second quarter of next year remains unchanged; after that, the demand is still on the brink of cliff, and the inflection point of the demand time is uncertain, so we will verify it carefully at that time.