Steel mills reduce production to help stabilize steel prices

From a fundamental perspective, the steel mills' production cuts are an important reason for the recent stabilization of steel prices. According to the statistics of the China Iron and Steel Association, the average daily output of crude steel of key enterprises in the late December 2013 was 1.638 million tons, down by 3.2% from the end of the previous year; the average daily output of crude steel was estimated to be 1.961 million tons, down by 2.7% from the previous period. In the month of December, the country’s total daily output of crude steel was 1.991 million tons, which was a decrease of 1.9% from the previous month and fell to below 2 million tons for the first time in the year.

“If the country’s environmental protection efforts continue to strengthen, crude steel production in January can basically maintain its level in December, which will cause the growth of social inventories before and after the Spring Festival this year to be significantly lower than in previous years. After the arrival of the late peak season, the rate of destocking will also be faster than in previous years. The performance of steel prices at that time may change the situation during the peak season in 2013.” Qiu Yuecheng, an analyst at the Nippyu Shinkansen Line, said. In his opinion, in the short-term, the market has continued to fall momentum is insufficient, before the Spring Festival will be based on stability.

However, for the medium and long-term markets, more analysts are pessimistic.

According to Bao Zheng, an analyst from Baocheng City, the average daily output of crude steel released by the China Steel Association recently fell below 2 million tons for the first time in a year, but the large energy saving and emission reduction efforts in Hebei Province is the main reason affecting the average daily output of crude steel. Therefore, it is necessary to observe whether the output will enter the decline channel. In terms of inventory, although the social inventory was lower than the same period of last year, but more of them were attributed to the loss of the reservoir's function of the reservoir, and a large amount of steel was hoarded inside the steel plant. The total inventory was not much improved.

“From the perspective of the price relationship between steel coke and ore on the surface, the rebar production profit is relatively overvalued, and it is the only product in the industry chain that has not been significantly discounted to the spot. Since the progress of capacity reduction is not smooth, we Thread still maintains a bearish view, if the average daily production capacity can not continue to decline, there is the possibility of restitution." He Wei said.

According to the report on positions held by the company during the last period, yesterday's top 20 bullish ** company seats added a total of 19,429 contracts, while the top 20 bears added 14,824 hands. Despite the increase in net positions, the top short seats continued to increase.

Guotai Junan analyst Fu Yang said that from the analysis of steel prices, the main factor affecting steel prices in 2013 was inventory changes. Realization also reflects the fact that funds are fleeing from the steel industry. However, in 2014, low stocks will be the norm, and a large number of stocks and stocks are hard to see. Therefore, the winter stocks that the market had been looking forward to at the end of 2013 did not see it. The supply side will still be a surplus pattern. Even if production capacity is eliminated as planned, the utilization rate of steel production in 2014 is likely to only rise back to around 75%, which is the main reason why the recent production cuts have limited support for steel prices.

This year, the demand side is also difficult to highlight. From the recent provinces have lowered the target of fixed asset investment growth, we can see that the overall decline in investment growth in 2014 is a high probability event. “According to our estimate of a 2 percentage point fall in fixed asset investment growth in 2014, this year's crude steel consumption may be around 810 million tons, which is an increase of about 4%, which is not a small drop from 2013.” Say.

Fu Yang believes that the main contradiction influencing the steel price in the new year will be at the cost end, especially the iron ore price fluctuation will have a direct impact on the steel price. The situation of oversupply of ore has become more and more obvious. The decline in ore prices will further drive down the steel price operation center in the future.