Limited production upgrades Rebar demand is not light

Time: 2018-08-15
Recently, Tangshan's existing production limit has been strengthened. Steel mills in the plains area are also limiting production. Even steel mills in Jiangxi have experienced limited production, and supply continues to decrease. On the demand side, from the data of spot transactions and steel inventories, the current off-season is not characterized by obvious characteristics, and the fundamentals of steel remain strong.
       Supply contraction
       Environmental protection and production restrictions have always been the logic of leading steel prices, and this year's environmental protection policy has been characterized by expansion and strengthening. The limited production of Tangshan began in late July, and began on August 12, Fengnan District increased the proportion of blast furnace production in iron and steel enterprises to 50%. At the same time, the scope of production restrictions has been expanded. There are steel mills in Jiangxi Province that have limited production, and the plain steel mills are also limited in production. Affected by this, the output of all major steel products showed a significant decline. In the week of August 10, the volume of hot coil production decreased by 150,000 tons to 3.124 million tons, and the output of cold rolled mills decreased by 19,600 tons to 810,200 tons. Rebar production decreased by 39,600 tons to 3,226,900 tons, and wire production decreased by 46,700 tons to 1,370,500 tons.
       From the second half of August, the current limited production of Tangshan continued, and the limited production of steel mills in the Plains region gradually increased, and the supply was suppressed. In the long run, the production limit will start in autumn and winter in October, and the limited production will be implemented in the heating season in November. Under the background of the gradual deterioration of air quality in winter, environmental protection will continue to increase, and steel supply will continue to operate at a low level.
       Good spot transaction
       Even in the traditional July-August demand season, spot transactions are still good. Throughout July, the volume of sample building materials traders was 184,000 tons/day, which was 0.6 million tons/day higher than last July. August also continued the characteristics of high off-season transactions. In the week of August 10, the average volume of 237 building materials traders nationwide was 183,000 tons/day, while in the same period of 2015-2017, the volume was 157,000-180,000 tons/day. The current spot transaction is still a good level in the historical period*.
       Inventory data is equally good. In terms of major steel products, the social inventory of rebar was 4.42 million tons, down by 106,600 tons from the previous month; the inventory of steel mills was 1,706,300 tons, up by 52,800 tons. Wire rod social stocks reached 1,436,500 tons, up by 32,100 tons from the previous month; steel mills stocked 476,000 tons, up by 19,700 tons. The hot coil social inventory was 2,192,700 tons, up by 49,900 tons from the previous month; the steel mill's inventory was 936,300 tons, down 15,000 tons from the previous month.
       In the past two weeks, steel inventories have shown a stable operation. Although steel mills' inventories have increased slightly, they are still about 730,000 tons lower than the same period of last year, which is at a low level in the same period. Overall, the spot inventory pressure is not large, even if the price has a correction, but because the inventory is not high, the price correction is limited.
       Overall, the current rebar market is not as light as the off-season. With the arrival of the seasonal peak season in September-October, rebar demand is still likely to be marginal.

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