Steel Prices Are Under Great Downward Pressure

Steel mills' production enthusiasm has improved significantly since August, as steel prices have continued to rise, and steel production has begun to accelerate. During the year, crude steel output has already turned positive in the first ten days of September. However, since October, crude steel output has decreased, and the blast furnace operating rate has also decreased.

According to data from the China Iron and Steel Association, key statistics iron and steel enterprises produced a total of 21.0775 million tons of crude steel and 20.1712 million tons of steel in the first ten days of October. Among them, daily crude steel output was 2,107,700 tons, a 1.11% decrease from the previous month; daily steel output was 2,017,100 tons, a 9.19% decrease from the previous month.

On October 13, the average blast furnace operating rate of the country's 201 iron and steel enterprises was 79%, down 1.5 percentage points from the previous week, and it has been declining for two weeks in a row, with the deceleration accelerating.

What caused the decline in steel production? Can it continue to fall in the future? 

Steel production is currently declining at a rate that is within the normal fluctuation range. Later on, we must pay attention to the trend of steel prices and steel mill profits. If they are relatively low, the output will suffer. Furthermore, policy changes must be monitored, including the intensity of the crude steel reduction policy and the specific situation of production restrictions in autumn and winter.

To begin with, in terms of steel mill profits, in September, with the monthly average value of steel prices falling slightly, the average monthly profit decreased compared to the previous month. Using third-grade rebar as an example, the gross profit margin decreased by 99 yuan/ton in September compared to the previous month based on the immediate raw material cost; however, the gross profit margin calculated by the two-week raw material inventory cycle decreased by 193 yuan/ton, a significant decrease. The obvious decline in steel mill profits will have a significant impact on production enthusiasm.

According to the production restriction policy, the current production restriction focuses primarily on sintering, and the restriction on the steel mill's blast furnace end is not particularly severe. However, with the approaching "20th National Congress of the Communist Party of China," relevant production restrictions may be imposed. Simultaneously, the staggering production plan for the heating season in autumn and winter will be introduced soon, putting a cap on crude steel output in the later period.

Furthermore, the state has recently emphasized that the work of epidemic prevention and control will not be disrupted and that it will adhere to the general strategy of "foreign defense against imports, internal defense against rebound," and the general policy of "dynamic clearing." As a result, epidemic prevention policies in various regions are becoming more stringent. Many regions in Inner Mongolia, Shanxi, and elsewhere are currently silent, which has a significant impact on transportation and logistics. Simultaneously, some steel mills in areas with severe epidemics have begun to reduce production or shut down some production lines, affecting a portion of the production.