Summary: With supply relatively stable and demand maintaining a medium-to-high growth rate, thread fundamentals are improving in a phased manner and have strong support for spot prices. However, for futures prices, the current expectation of weakening winter demand still exists. Judging from the pace of deduction, there is still a high probability that high inventory will enter the winter storage season, and futures prices are under pressure. Under strong and weak expectations, steel prices are expected to temporarily show a range-bound trend. If demand weakens as expected, futures prices may respond in advance; however, if terminal demand continues to remain strong and raw material supply and demand continue to be tight, market expectations may change.
The resilience of demand for building materials continues, and expectations of weakening still exist. Against the background that both real estate sales and financing regulations have become stricter, and the most relaxed period for construction industry funds has passed, it is difficult for the terminal demand growth rate of building materials to continue to recover to the peak season level in the first half of the year. However, in the near future, the resilience of real estate still exists, the pressure to rush construction before the cold winter has increased, and the concentrated issuance of special bonds has supported the rapid release of steel demand for some infrastructure projects. The medium-to-high growth demand for building materials in the short term is still expected to continue until mid-November. This is also reflected in the rise in building materials. It can be verified by micro-data such as transactions and warehouse shipments from Hangzhou. In the later period, with the tightening of landing funds and the coming of winter, demand is still expected to weaken.
The output of molten iron is stable and declining, and the pressure on thread supply is eased. Taking into account factors such as external disturbances, seasonal changes, and profit and cost structures, it is expected that the supply rhythm of hot metal and crude steel will show a steady and downward trend in the later period. As the price difference between coil wires and threads continues to widen, molten iron is redistributed between spirals and threads. Judging from the weekly data of the Steel Federation, this trend of waxing and waning continued in October. At present, the pressure on the thread supply side has been significantly relieved compared with the previous period. The main fundamental contradictions focus on the sustainability of demand and the pace of high inventory removal.
The recovery of overseas production has slowed down, and the impact of imports has temporarily eased. The resurgence of the epidemic has impacted overseas terminal demand, and iron ore prices are still at high levels, severely restricting the resumption of production of overseas long-process enterprises. From the import side, with the fall in steel prices in September and the moderate recovery of overseas economies, the profits of imported steel billets continue to shrink. The window for imported steel billets is temporarily closed after mid-to-late September. Taking into account the lag time from procurement to customs declaration, it is expected that 10 Monthly steel billet imports will continue to decline, and the pressure on off-balance sheet supply will temporarily ease.
Risk factors: Raw material shortages lead to rising costs (upside risk); demand sustainability is less than expected (downside risk)
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1. Terminal demand analysis: Resilience continues, but expectations of weakening still exist
1. Overview: Demand for building materials continues to be resilient, but expectations of weakening still exist
After the "Golden Nine" expectations fell through, the "Silver Ten" came as expected to. Compared with the downturn in September, the demand for building materials rebounded significantly in October. The demand for stocking and replenishment before and after the National Day has already been traced by the end of September. The post-holiday demand is calculated based on the caliber of the Steel Federation and has continued to maintain a growth rate of more than 8%. growth rate. We believe that the recovery of demand growth in October is mainly driven by the following reasons: 1. The resilience of the real estate sector. Since the second half of the year, real estate sales have made up for the gap in the first half of the year, the absolute increase in newly started construction area has remained at a high level, and the strength of steel used in real estate has not weakened significantly. This is the fundamental support for the demand for building materials. 2. Part of the funds are gradually implemented. Although the reliance on infrastructure in policy thinking has obviously weakened, a large number of newly started infrastructure projects in the first half of the year are waiting for support. With the large number of special bonds issued from August to October, projects with tight funds will quickly release the demand for building materials. 3. Increased pressure to rush work. In order to make up for the delayed construction period in the first half of the year, the construction industry faced strong pressure in the second half of the year. Some areas were still affected by rainy weather in early and mid-September, and the suppressed rush to work demand was delayed in October. At the same time, the expectation of a cold winter this year has further intensified the pressure to rush to work in October. 4. The disturbance of off-balance sheet supply to on-balance sheet demand decreases. With the fall in domestic prices and the recovery of overseas economies, the window for importing iron elements such as steel billets has gradually narrowed. The import volume of steel billets has dropped significantly since late September, resulting in a gradual reduction in the effect of underestimating the demand for building materials. Overall, lagging peak season demand was released again in October. As we reported in September, "Lame Building Materials Demand: Why Do Funds Continue to Be Tight?" " pointed out in "In the context of changes in infrastructure policy thinking and the most relaxed period of funds, it is difficult for the demand for building materials in the fourth quarter to reproduce the sustained 15% growth rate from April to June. However, with the marginal pressure of funds With the situation eased and work rushed forward, demand still showed strong resilience in October. Standing at the time point of late October and early November, judging from micro data such as the continuity of construction in the construction industry, building material transactions, and warehouse shipments from Hangzhou, the demand for building materials has not yet shown obvious signs of weakening. It is expected that the demand for building materials with medium and high growth rates will continue until at least November Mid-month. In the later period, with the tightening of landing funds and the coming of winter, demand is still expected to weaken.
2. Real estate interpretation: The impact of regulatory policies is beginning to appear, but steel demand remains resilient
The impact of tightened regulatory policies on real estate is mainly reflected in two aspects. First, in some places In order to curb overheating, cities have tightened policies from the sales side, and the second is the “third tier, fourth gear, 5%” financing side supervision at the ministry level. Judging from the real estate sub-data, the impact of regulatory policies has begun to partially appear.
For the sales side, the sales area growth rate from May to August continued to maintain a high level of more than 9%. After the supervision was tightened, the sales growth rate began to decline significantly in September, and the growth rate also appeared in terms of city level. There is a clear differentiation, with the growth rate of first-tier cities continuing to rise, while the growth rate of second-tier cities has fallen earliest and to the greatest extent. After the initial demand was released, sales in third-tier and below cities, which accounted for the highest proportion, also began to weaken. The weakening growth rate of commercial housing sales began to be transmitted to the sources of real estate funds, and the growth rate of sales collections also dropped sharply in September. The impact of the "three red lines" on real estate companies has also been further highlighted. After financing continues to tighten, the enthusiasm of real estate companies to acquire land has been suppressed, and the willingness of local governments to sell land has also declined. Recently, the area of land transactions has continued to fall. In September and October It has been significantly lower than the same period last year. In the long run, as the growth rate of sales receivables gradually slows down, the difficulty of self-raised financing increases, and real estate credit tightens, there are hidden dangers in the stability of the source of development funds. The impact of slowing sales and reduced land acquisitions will gradually affect the construction The end is reflected, which is not conducive to the long-term terminal demand for building materials.
However, in the short term, the source of development funds still maintained a relatively high growth rate of 14.5% in September, so the growth rate of real estate investment still rebounded slightly. From the perspective of items, after the high turnover in the past few years, real estate companies have retained a large amount of stock construction area, and the high growth rate of construction project investment has strong sustainability. The rush pressure of stock construction has become an important support for the demand for steel in the real estate end; On the other hand, although land transactions continue to weaken, land purchase costs lag behind actual transactions, so it has not yet exerted a significant drag on real estate investment.
The growth rate of new real estate construction in September turned negative. On the one hand, it was affected by the decrease in land acquisition, and on the other hand, it was also related to the high base in the same period in 2019. In absolute terms, 200 million square meters of new construction The area of construction starts is not low for September. Considering that the growth rate of new construction starts in the early stage has remained at a high level, it is expected that the actual impact of the weakening growth rate of construction starts on the strength of steel use will be difficult to reflect for the time being. The growth rate of new construction starts in October 2019 was as high as 23%. Given the high base, the growth rate of new construction starts in October this year may fall further, which may have a certain impact on market sentiment. Overall, the strengthening of real estate supervision from the financing and sales sides has begun to have a substantial impact on some real estate indicators, raising concerns in the long term. However, against the background of the large increase in new construction starts in the early stage, the high existing construction area, and the increasing pressure to rush construction, the short-term demand for steel from the real estate end is still resilient.
2. Steel supply: Domestic supply is stable and declining, and the impact of imports is easing
1. Hot metal production is stable and declining, and thread supply pressure is easing
Second half of the year Various types of production restriction disturbances have been significantly reduced compared to the same period in previous years. Under low profits, molten iron production has basically maintained a stable and declining trend. From January to September, domestic pig iron production accumulated 3.8% year-on-year, and in September it was 12.6% year-on-year. Taking into account the impact of the National Day military parade production restrictions in October last year, the year-on-year growth rate in October is expected to further increase; from January to September, crude steel production accumulated 4.5% year-on-year. %, 11.8% year-on-year in September. Thanks to the increase in environmental protection facilities and the willingness of local governments to protect the economy, various production restrictions in the second half of the year were significantly less disruptive than the same period in the past few years. Single-point production restrictions in some areas have a limited impact on national hot metal production, and the actual implementation is also relatively strong. generally. Taking Tangshan as an example, although affected by certain environmental protection controls, the changes in Tangshan blast furnace capacity utilization have been significantly smoother compared to the previous two years. Judging from the amount of blast furnace maintenance, due to fewer disturbances such as environmental protection and celebrations, the cumulative maintenance volume so far is slightly lower than the same period in the past two years. It is expected that blast furnace maintenance will continue to advance steadily in the fourth quarter.
In the case of relatively few external disturbances, hot metal production scheduling plans will be more based on profit conditions and combined with seasonal changes. As coke increases continue to be implemented, the cost of molten iron remains high, long-process steelmaking profits are squeezed and remain at a low level, and short-process flat electricity production is also on the verge of breaking even. In anticipation of seasonal weakening of terminal demand, steel companies Willingness to increase production is low. It is worth mentioning that as the price of long-process charge continues to rise, the cost structure of steel has also undergone certain changes recently: the cost of long-process thread difference has continuously exceeded the valley electricity cost of electric furnaces, and has recently been almost the same as the average electricity cost of electric furnaces. Long processes with low supply elasticity become the source of high-cost production, while short processes with high supply elasticity become the source of low-cost production, resulting in a decrease in the regulating effect of electric furnaces on crude steel production. Therefore, taking into account external disturbances, seasonal changes, profit and cost structure and other factors, it is expected that the crude steel supply rhythm will show a stable and downward trend in the later period.
For specific steel varieties, the changing trends of thread and wire production are divergent. As the price difference between coiled wires and threads continues to widen, molten iron has been redistributed between screws and wires. Thread production has continued to fall since June, while wire rod production has continued to rise. Judging from the weekly data of the Iron and Steel Federation , this waxing and waning trend further continued in October. At present, the pressure on the thread supply side has been significantly relieved compared with the previous period. The main fundamental contradictions focus on the sustainability of demand and the pace of high inventory removal. At the same time, there is also a certain risk in the decline in thread production. The reason for the widening of the coil-thread price difference is that the pressure on real estate stock construction to rush the work is increasing, the demand for coiled wire is high, and the demand for small-sized threads in construction above the ground is relatively high. If steel If enterprises continue to switch to the production of coiled threads or small-sized threads, large threads may face the risk of periodic shortage of specifications in the later period.
2. The recovery of overseas production has slowed down, and the impact of imports has been temporarily alleviated
Entering autumn and winter, overseas developed countries in Europe and the United States, as well as developing countries such as India and Pakistan, have all ushered in the second wave of the epidemic. The epidemic is raging, and the average number of new confirmed cases overseas has hit new highs every day. The resurgence of the epidemic has impacted overseas terminal demand, and iron ore prices are still at high levels, severely restricting the resumption of production of overseas long-process enterprises. In September, overseas blast furnace pig iron production was 33.2 million tons, a decrease of more than 1 million tons month-on-month and 8.8 percentage points year-on-year. The increase in demand for coking coal and iron ore was limited. The relatively rapid recovery of electric furnace production has led to a slow recovery in international scrap steel prices. In September, overseas crude steel production reached 63.8 million tons, which was basically the same month-on-month and -6.8% year-on-year.
From the import side, with the fall in steel prices in September and the moderate recovery of overseas economies, the profits of imported steel billets continued to shrink. The window for steel billet imports was temporarily closed after mid-to-late September. Considering that from procurement to Due to the lag time in customs declaration, it is expected that steel billet imports will continue to fall in October, and the pressure on off-balance sheet supply will be temporarily relieved. Judging from the source and destination of imported steel billets, slabs mainly come from the CIS, South America and Southeast Asia, and billets mainly come from South Asia, West Asia, Southeast Asia, and the CIS. Both billets and slabs mainly flow to the three provinces of East China. Steel billets are imported. The decline in volume will help alleviate supply pressure in East China.
In addition to steel billets, sponge iron, breaded pig iron and hot-pressed iron blocks were also imported in large quantities this year as substitutes for scrap steel. From January to September, a total of 2.6 million tons of sponge iron and a total of 3.85 million tons of breaded pig iron were imported. tons, can be put into electric furnaces or converters to become a marginal increase in the supply of iron elements.
3. Summary: Fundamentals are improving in a phased manner, and future prices are expected to be suppressed
As mentioned above, the time for the most relaxed funding for the construction industry has passed as both real estate sales and financing regulations have become stricter. Under such circumstances, it is difficult for the terminal demand growth rate of building materials to continue to recover to the peak season level in the first half of the year. However, in the near future, the resilience of real estate still exists, the pressure to rush construction before the cold winter has increased, and the concentrated issuance of special bonds has supported the rapid release of steel demand for some infrastructure projects. Therefore, the demand for building materials with medium and high growth rates in the short term is still expected to continue until November. This is also reflected in the It can be verified by micro-data such as transactions and warehouse shipments from Hangzhou. With supply relatively stable and demand maintaining a medium-to-high growth rate, the fundamentals of threads are improving at this stage, driving inventory to maintain rapid removal, and providing strong support to spot prices. However, for futures prices, the current expectation of weakening winter demand still exists. Judging from the rhythm of inventory deduction, if you want to reduce inventory to the level of the same period last year before the start of the winter storage season, you need to achieve an average weekly inventory reduction of 84 in the next five weeks. 10,000 tons, that is, the apparent weekly thread consumption must remain around 4.5 million tons. Judging from the pace of demand changes in previous years, there is great pressure to maintain this growth rate. Therefore, there is still a high probability that high inventories will enter the winter storage season, which is expected to suppress traders' winter stockpiling and force steel companies to reduce production. Futures prices are under pressure under this expectation and are weaker than spot prices. Under the strong expectation of weak reality, steel prices are expected to temporarily show a range-bound trend, and it is necessary to continue to track the continuity and change rhythm of demand. If demand weakens as expected, futures prices may respond in advance; however, if terminal demand continues to remain strong, raw material supply and demand If prices remain tight, market expectations may change.
This article comes from Zeng Ning’s black team