Abstract

Projection: ‘Holiday-in-place’ policy supported the demand pre and during Lunar Chinese New Year holiday, and will also generate the early startup after the holiday. Supply of steel is falling. The raw materials supply tension will continue.

SteelHome predicts that Chinese steel market price will go up in February.

Trading Tips: Steel companies should build up raw materials stockpiles; distributors may buy in if they have solid sales channels and sufficient money on hand; end users may place the bookings when necessary; derivatives participants may buy the long 2105 contracts.

1 Review on China steel market in January 2021

Chinese steel market prices decreased slightly in January. The rise of Covid-19 increased the uncertainties. At the end of month, the move of People’s Bank of China to reclaim fund tightened the liquidity in the market. Meanwhile, the raw materials shortage remained in the place, which as a result constrained the price fall in steel.

By January 28, SteelHome China Steel Price Index (SHCNSI) was 4,774 yuan, down 42 yuan from end of December. By product, longs index (SHCNSI-L) was 4,422 yuan, down 7 yuan; flat index (SHCNSI-F) was 4,753 yuan, down 109 yuan; special steel index (SHCNSI-S) was 5,132 yuan, down 17 yuan; stainless steel index (SHCNSI-SS) was 15,854 yuan,up 1076 yuan.

Steel Futures Contracts: 2105 rebar futures contract and HR futures contract traded on Shanghai Futures Exchange closed at 4,275 yuan and 4,423 yuan, a decline of 113 yuan or 131 yuan from the end of December.

Table 1: SteelHome Steel Price Index and Futures Contracts in SHFE

Source: SteelHome Database (to try the terminal with link http://www.steelhome.cn/application/steelhomedata_en.zip)

2 Market Inventory Climbing up; BF Operating Rate Still High While EAF Rate Falling; Transactions Higher on Year

2.1 Inventory

According to SteelHome survey, the combined inventory of five steel products in market and mills by January 28 totaled 18.73 million tons, a rise of 3.64 million tons over the month, while a rise of 3.8 million tons compared to the two weeks before 2020 Lunar Chinese New Year.

2.2 Operating Rate of BFs and EAFs

According to SteelHome survey, by January 28, BF operating rate of major steel mills in China was 93.34 percent (on the basis of capacity), a drop of 0.85 percentage points from end of December. The operating rate of independent EAF-based mills was 65.76 percent (on basis of capacity), a drop of 12.97 percentage point.

2.3 Market Transaction

According to SteelHome survey, daily transaction of rebar, medium plate and HR coil of distributors in major steel marketplaces on January 28 was 52,200 tons, 19,400 tons and 17,000 tons, down 34.3 percent, 9.4 percent and 20.6 percent from the daily trade in the counterpart time in 2020.

Table 2: Steel Inventory in Marketplaces Before Lunar Chinese New Year Holiday

Quantity in ton

Source: SteelHome Database (to try the terminal with link http://www.steelhome.cn/application/steelhomedata_en.zip)

3 Forecast of China Steel Market for February 2021

3.1 Crude steel production

According to National Bureau of Statistics, the production of crude steel, pig iron and steel products in December was 91.25 million tons, 74.22 million tons and 120.34 million tons, up 7.7 percent, up 5.4 percent and up 12.8 percent on year.

The daily production of crude steel in the given time was 2.9435 million tons; and that of pig iron and steel products was 2.3942 million tons and 3.8819 million tons.

As per data from General Administration of Customs, China imported 1.375 million tons of steel in December, down 7.3 percent on year; exported 4.85 million tons of steel, up 3.5 percent on year. The import of billet was 0.865 million tons and export 90 tons.

The supply of crude steel and steel products in December was calculated at 88.42 million tons and 116.87 million tons, up 7.6% and up 12.9% from the previous period.

In view of the control and prevention of Covid-19 in Hebei province and the decelerating pace in EAF utilization rate, the steel production in January will be lower than December volume. In February, most of EAF-based mills will stop operation, the move will result into the decline in crude steel production.

SteelHome predicts that in February, daily crude steel output will be 2.9 million tons; steel import to fall below 1 million tons; steel export to climb up to 5.5 million tons; The apparent supply of crude steel 76.91 million tons, up 6.2 percent on year.

Table 3: Forecast on China Crude Steel Production, Steel Import/Export in February

Source: SteelHome Database (to try the terminal with link http://www.steelhome.cn/application/steelhomedata_en.zip)

3.2 Construction Steel Demand to Outnumber The Same Time in History

Because of the rise in Covid-19 and the proposed ‘holiday-in-place’ advocate, Ministry of Transport projects that the number of travelers for celebrating the traditional holiday will be 1.152 billion, with daily 28.8 million people each day, a drop of 60 percent from the same time in 2019 or a drop of 20 percent from the same time in 2020. If most of migrant workers stay in the cities instead of travelling back to hometown, the steel demand for industrial and construction sites will be stronger than the same time in the history. What’s more, the demand will recover quickly after the long festival season.

3.3 Iron Ore and Coke Supply Tension to Continue

The iron ore supply shortage seems to be clear in the first half year of 2021, as global crude steel production will be rising, stimulated by the price surge.

The supply tension in coke will sustain. On January 28, the coke inventory of coke producers, ports and steel mills came to 0.196 million tons, 2.505 million tons and 4.736 million tons, pretty low rate.

3.4 POB Tightened Liquidity in January, but Monetary Supply in Feb to Loosen

During January 25-28, People’s Bank of China tightened the liquidity via public market, with the 568.5 billion RMB reclaimed in four days.

Monetary policy will continue to support economic recovery, and we will secure the consistency, stability and continuity, said Mr.Yi Gang, Head of central bank. In other word, the money recollection at the end of January will not sustain. Then we still expect the loose monetary supply in February.

3.5 MIIT Minister: China Vowed to Press down Crude Steel Capacity

China will gradually establish system to control carbon emission, pollutant emission, total energy consumption so as to realize the reduction in crude steel production in 2021.

According to CEADs, the total CO2 emission in 2017 was 9.339 billion tons, consisting of 1.677 billion tons from ferrous smelting industry, a 17.96 percent share in the total. With the carbon peak in 2030 and carbon naturalization target for 2060, China steel industry will find it heavily pressurized in cutting carbon emission.

The current measures to press down crude steel production: a) to implement new version steel capacity replacement policy. However, SteelHome estimates an expansion in steel capacity in 2021 despite of the severe replacement move; b) the speedup in M&As; c) the acceleration of industrial structural adjustment in integrated and short-process mills.

Given the robust steel demand at home and abroad in 2021, SteelHome finds it difficult to reduce crude steel production in the year.

3.6 Conclusion

2021 Spring Festival (Lunar Chinese New Year) may be an exception for steel demand, on the back of holiday-in-place advocate. The collective maintenance in EAFs and the production stoppage before the holiday will generate the decline in steel supply. The recovery in steel production, high price and raw materials supply tension will go on, a strong support for steel price. In short, SteelHome foresees an uptrend in Chinese steel market price in February.