Rebar price outlook,February 2, 2021-Boiler Tubes,Heat-Exchanger Tubes,Superheater Tubes,Supplier,Beite

Rebar price outlook,February 2, 2021

Rebar price outlook, February 2, 2021

Limited down space for rebar

Winter storage still exist

At present, the discount for the 2105 contract of rebar is very small, and the operation needs to be vigilant about the price fluctuation adjustment before and after the Spring Festival. The market outlook can continue to pay attention to the suspension and resumption of work on the construction site before and after the Spring Festival. If the epidemic situation changes, it will have a greater impact on the resumption of work on the construction site and the short-term sentiment of the steel market.

The downstream demand for construction steel such as rebar is mainly for real estate and infrastructure, with outdoor construction as the main source, which is greatly affected by weather factors and shows obvious seasonality. Spring and autumn are traditional peak seasons each year. High temperature and rain in summer adversely affect demand. In winter, it is difficult to construct under the rainy, snowy and freezing climate in the north. With the long Spring Festival holiday, demand drops to the freezing point of the whole year. From the perspective of supply, steel mills have basically maintained continuous production throughout the year. Although environmental protection restrictions in autumn and winter, equipment maintenance at the end of the year, and the suspension of electric furnaces during the Spring Festival have brought some impact, compared with the decline in demand, the supply is generally relatively stable.

In this context, steel mills need to rely on external forces to pass all or part of the steel inventory, price and capital risks they need to bear around the Spring Festival. Under the joint actions of steel mills and traders, the construction steel market has formed a certain scale of winter storage. Of course, when traders provide financial support for winter reserves to steel mills, the main consideration is the profit margin that can be brought about by rising steel prices after the Spring Festival. Therefore, the main factors affecting traders' winter storage behavior are the expected increase after the Spring Festival and the degree of profitability of steel mills' winter storage lock-in prices.

In recent years, due to the increase in the direct sales ratio of steel mills and the abundant channels for obtaining financial support, the proportion of traders in winter storage has declined, and many steel mills have begun to actively or passively carry out their own winter storage. This year, as the steelmaking profits of steel mills have fallen into a general loss, the probability of giving significant profits to traders' winter storage is relatively small, and the probability of passive winter storage is increasing.

Winter storage of steel mills in the past ten years

According to statistics, the winter storage of rebar in the past ten years roughly shows the following characteristics:

One is the generalized winter storage time. If the low point of social inventory is counted as the beginning and the high point of social inventory is counted as the end, the winter storage basically starts around mid-December (about 8 weeks before the Spring Festival) and ends at the beginning of March of the following year (3 weeks after the Spring Festival) Around), the duration is 11-12 weeks.

The second is the accumulation range. Part of the trader's winter storage is to ensure the normal operation of the business, and the other part has the speculative nature of rising prices during the peak season. The accumulation of stocks varies greatly in different years and is highly correlated with market expectations. From the data point of view, social inventories have risen by an average of 162.7% during the winter storage period in the last ten years, and the accumulated inventory has increased significantly in recent years. In addition to the thorough removal of inventory before winter storage, the trend of steel prices after the supply-side structural reform has improved, and the speculative rebound of traders is also an important reason.

The third is price performance. Due to the weak terminal demand for steel during winter storage and relatively high supply pressure, spot prices usually underperform, with an average drop of 4.3% in the past ten years. However, for traders, the performance of peak season steel prices after winter storage is more critical. Futures performed relatively well during this period, with an average increase of 3.9% in the last ten years. On the one hand, the seasonal factors of supply and demand are usually reflected on the disk; on the other hand, the rebar futures have a long-term discount. The discount repair is usually based on the rise of futures, which supports the disk.

Winter storage policy for steel mills this year

In order to promote the circulation of goods and increase the enthusiasm of traders for winter storage, steel mills will introduce relevant policies every year to give certain price and capital concessions. The winter storage policies in the Northeast region are generally introduced in mid-December, and other regions will follow up in January.

This year, the release time of the winter storage policy of the steel mills is slightly later than in previous years in terms of the lunar calendar. This is directly related to the fact that the steel mills are turning to losses and difficult to weigh the winter storage pricing. Judging from the steel mills that have issued the winter storage policy, this year steel mills still continue the conventional modes of price lock, preferential treatment, interest calculation and post-settlement. The discount interest rate is generally 8% per month, and the delivery time is mostly around April 1. Among them, the lock-in price of rebar in northern steel mills is more concentrated in 3840-4060 yuan/ton, and the lock-in price level of steel mills in Central and East China is mostly 4100-4250 yuan/ton, and the later settlement prices are mostly 30-120 yuan. Yuan/ton, not even set a float. In short, this year's overall incentives are relatively limited, and even many steel mills are not willing to further expand and lock in losses. They will no longer implement the winter storage policy this year. Prices follow the market and choose independent winter storage.

Estimated storage range during winter storage period

Since December 25, 2020, rebar stocks have gradually increased, and the market has once again entered the generalized winter storage stage. How high the overall storage range of rebar can be in the later period depends mainly on the actual reduction in production due to declining demand, increasing losses, and tight raw materials, as well as the specific rhythm of the resumption of production and production of terminal demand such as downstream construction sites.

From the supply side, the high-frequency weekly rebar output data show that the current steel mill's output reduction rate is not yet obvious. According to our calculations, the long-process rebar has lost about 200 yuan/ton, and the short-process (flat power) profit has also shrunk to about 60 yuan/ton. Although the current capacity utilization rate of construction steel plants has declined, it is lower than in previous years. The point is far, there is still room for substantial reduction in production.

Recently, news of long-process steel mills’ blast furnace, rolling line maintenance and short-process shutdowns have gradually increased. It is believed that the reduction in rebar production will gradually be reflected. However, the blast furnace production at the beginning of 2020 was affected by the epidemic, and the reduction and duration of production were longer than in previous years, and the blast furnace production during the Spring Festival in 2021 is likely to be unaffected by the epidemic. By comprehensively balancing various factors such as the level of steelmaking profit, the capital accumulation of steel mills, and the proportion of electric arc furnaces, we feel that it is relatively appropriate to refer to the reduction in production of construction steel mills during the Spring Festival in 2019. From the twelfth lunar month of 2018 to the Spring Festival in 2019, the largest reduction in the national converted production of rebar reached 12%, but the profit of the long-process steelmaking was higher at that time, and the short-process profit was comparable to the current one. Therefore, when we made our estimates, we appropriately increased some production reduction ratios based on the current situation of increasing losses.

From the perspective of demand, during the 2020 winter storage period, the resumption of work on construction sites was greatly impacted by the epidemic, and it was delayed by about 6 weeks before returning to a relatively normal level of operation. Regarding the construction site conditions during the Spring Festival in 2021, we have also conducted some research and found that the suspension and resumption of work on the Spring Festival this year are more complicated. Some construction sites have been suspended early, especially small and medium-sized projects, but some construction sites do not stop during the Spring Festival. Workers do not return home. Considering that the situation of this year's Spring Festival epidemic is still unclear, there may be cases in which migrant workers returning to their hometowns are still isolated and delayed for at least two weeks when they resume work. Therefore, it is more difficult to assess the pace of recovery of terminal demand for construction steel during the Spring Festival this year. We finally refer to the decline in demand in the twelfth lunar month of 2019, and add a three-week delay to the resumption of work on the basis of previous year's suspension to arrive at the final demand estimate.

Combining the evaluation of supply and demand, we believe that the total rebar inventory (factory warehouse + social inventory) will be predicted as follows:

According to the pre-judgment of the resumption of work on the construction site in about 3 weeks, the overall rebar inventory is expected to be the same as 2020, and the inventory turning point may appear in the middle of February of the lunar calendar, that is, around the end of March of the Gregorian calendar. From a structural point of view, the proportion of steel mill inventories must have risen year-on-year. If downstream construction sites can resume work and rush to work according to our assessment time (mid-to-late March in the Gregorian calendar), then the overall rebar inventory pressure is not too large. Steel mills will also have some psychological expectations in advance after experiencing the 2020 epidemic, and the price of raw materials will remain strong after adding them, so it is unlikely that steel prices will fall sharply. However, the current discount for the 2105 contract of rebar is very small, which has already reflected some expectations of relatively strong demand after the Spring Festival. Therefore, the operation also needs to be alert to the price fluctuation adjustment before and after the Spring Festival.