The China steel PMI is now in rare territory:
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Judging from the steel industry PMI surveyed and released by the China IOT Iron and Steel Logistics Professional Committee, it was 38.3% in October, a decrease of 6.7 percentage points from the previous month. The steel industry is operating tightly. The sub-indices show that under the influence of the production suppression policy and the dual control of energy consumption this month, market demand has been suppressed, and steel production has continued to decline. The price of raw materials went up as a whole, and the cost of steel mills increased. The price of steel has continued to decline due to various factors, and the profits of steel mills have been affected. It is expected that in November, the steel market will continue to tighten, the supply and demand will fall, and the cost may fall, and the price may rise first and then fall.
In October , the focus of the steel market was on the demand side. The dual control of energy consumption and production suppression policies during the month restrained market demand. During the month, domestic steel demand rose first and then declined, and the overall operation was weak, with a larger drop from the previous month. The weakening of demand, on the one hand, is that the dual energy consumption control policy and rising energy prices have affected the production and operation activities of major steel users, such as the construction industry and manufacturing industry, resulting in shrinking demand for steel; on the other hand, the output of steel is affected. Therefore, the willingness to take orders is not strong. The combination of these two factors caused the October new order index to drop by 10.8 percentage points from the previous month to 28.2%, which is at a low level. According to Shanghai Zhuo Steel Chain, the current domestic downstream procurement is general, and terminal supply and demand are weak. Judging from the monitored Shanghai stock market terminal thread spiral procurement data, the average daily terminal procurement volume in October decreased by 6.6% month-on-month, and the transaction performance was not good. In addition, steel exports also continued to maintain a downward trend. Firstly, due to the decline in domestic production, secondly, the cancellation of export tax rebate policy continued to exert force, and thirdly, the production of foreign steel enterprises rebounded, and the gap was gradually repaired. The new export order index in October was 38.7%, which was lower than 40% for four consecutive months.
Under the influence of policies such as steel production reduction and dual control of energy consumption, steel mill production has also continued to decline. The issue of power and production restrictions appeared in many places at the beginning of the month, which has a more obvious impact on production. Although the energy shortage problem has been eased in the middle of the month, the policy of dual energy consumption control is still steadily advancing, the policy of suppressing production is strictly implemented, and the winter environmental protection and production restriction are about to come. With a cautious attitude towards production, overall production declined to a certain extent in October. The production index was 36.8%, a decrease of 9.2 percentage points from the previous month. It remained in the contraction range for the fourth consecutive month, and was the lowest in the past 20 months, indicating that there is a trend of slowdown in production. According to statistics from the China Iron and Steel Association, as of mid-October, the key statistical iron and steel enterprises have accumulated a daily output of 1,882,500 tons of crude steel, a decrease of 2.75% from the previous month and a year-on-year decrease of 13.45%; the daily production of iron is 1,668,300 tons, a decrease of 5.12% from the previous month and a year-on-year decrease of 13.20%. ; Daily production of steel products was 1.838 million tons, a decrease of 3.81% month-on-month and a year-on-year decrease of 12.40%. The decline in production led to a decline in the raw material procurement activities of steel mills. The procurement volume index was 37.0%, a decrease of 2.7 percentage points from the previous month, and it was below 40% for three consecutive months.
In October , another hot spot that attracted great attention from the market was the overall increase in raw material prices and the increase in steel mill costs. Since October , iron ore prices have ended the previous three-month continuous decline and rebounded this month. The main reason is that the ore supply side is affected by the epidemic, and unstable factors have accumulated, and the “supply-side reform” of imported iron ore is expected to gradually heat up in the market. The price of coke showed a trend of rising and falling in October. In the first half of the month, due to the tight coal supply caused by environmental protection restrictions, the price of coke has been on an upward trend. Afterwards, under the policy of guaranteeing supply, the coal hype factor gradually faded and productivity increased. The supply has rebounded, which in turn has led to a significant drop in coke prices. On the whole, steelmaking costs for enterprises continued to rise in October, with a purchase price index of 60.0%, an increase of 8.4 percentage points from the previous month.
Multiple factors have caused the price of steel to fall, and the profits of steel companies have been affected . In October, steel prices continued to decline. The main reasons are as follows. First, under the policy of ensuring supply and stabilizing prices, the prices of raw materials such as coal have fallen, driving down the price of ferrous metals; second, market demand is weak, and price support has weakened; third, international commodity prices within the month The decline has led to a callback in domestic steel prices. Fourth, corporate surveys show that steel companies in Jiangsu and Guangdong and Guangdong have resumed production. The operating rate of blast furnaces has risen during the month, and output is expected to be released. According to data from Shanghai Zhuo Steel Chain, the Shanghai rebar price index was 5,975 yuan/ton on October 9, which was the highest point of the month, and then went down all the way until October 28, reaching the lowest point of 5185 yuan/ton in the month. In the case of rising costs but falling steel prices, corporate profits will be affected to a certain extent.
It is expected that in November, as the weather turns cold, the impact of environmental protection production restrictions on steel production will expand, and the continued implementation of increased production caps will continue to restrict market supply. In November , as the temperature in the north drops, the diffusion of pollutants is slow, and environmental protection production restrictions are expected to be strictly enforced, which will restrain steel mills’ production. The last two months are also a key period to complete the year-on-year target of no increase in steel production for the whole year. Under the current policy background, steel mill production is expected to shrink further in the future.
The steel market demand continued to decline. From the perspective of credit data, the current currency liquidity is gradually tightening, and it is difficult to effectively inject some funds into the downstream, which has further aggravated the financial tension in the physical industry. Especially from the perspective of the upper, middle and lower reaches of the steel industry chain, the shortage of funds this year has become more obvious. Most downstream companies have encountered financial difficulties, which has greatly inhibited the liquidity of the commodity market and has a certain impact on market demand. The current poor performance of the domestic real estate industry has weakened the support for the entire bulk commodity industry. Coupled with the weaker overall industry expectations, steel demand is unlikely to improve significantly in the fourth quarter. In addition, the current overall bulk commodity prices are still at a high level, which also inhibits the purchasing power of the mid- and downstream, and the market environment will be difficult to change in the short term. Geographically, due to the rapid decline in temperature in the north, market demand will drop significantly after November, while the south may still have some support in the first half of November. On the whole, in November, market demand may show some performance in the first half of the month, but as the weather enters winter, demand will slow down more quickly. Enterprises are also more cautious about the market outlook. The expected index of production activities and business activities is 46.1%, a decrease of 10.3 percentage points from the previous month, ending the 3-month expansion interval trend.
Business costs are expected to fall again, and steel prices may rise first and then fall. With the gradual recovery of coal supply, prices have gradually returned to rationality. It is expected that in November, iron ore prices may enter a downward channel again as domestic demand declines, causing steelmaking costs for enterprises to adjust again. Given that supply is expected to be affected by strict production restrictions, demand will become an important factor in the changes in steel prices. Driven by demand in the South, steel prices may rise slightly in the first half of the month, but the subsequent weather will turn cold, and demand in the north and south will gradually Decrease, and prices may fall again in the second half of the month.
Onwards and downwards for the ferrous complex.