The ferrous complex was smoked on November 9, 2021 as spot fell, steel was smoked and paper burned overnight:
Steel futures are in free fall again:
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My view is there another 1000 point fall in this before we even get serious. There is still a very good chance that we go much lower than that. Here’s some texture:
China’s steel prices decline rapidly amid weakening demand and lower material prices, with steel rebar market shifting from a strong rally to sector-wide losses in a matter of ten days, said industry insiders, adding that steel prices are likely to slide further in the fourth quarter.
“Demand from different steel-consuming industries are all sliding. The steel rebar industry slipped from a multi-year high into loss last month,” a steel product salesperson in a major steelmaker told Yuan Talks.
The China Iron and Steel Association (CISA) said at a meeting on October 25 that in the first first three quarters of the year, domestic steel demand maintained largely stable before gradually falling, while the growth rate of steel production slowed.
On the supply side, China’s crude steel output increased 16% year over year in the first quarter, up 8% in the second quarter and fell 15% in the third quarter, according to data from the association. In particular, average daily crude steel output in September fell 21.2% from a year earlier to 2.458 million tonnes, marking the lowest level in nearly three years and sliding 24.6% from a high in April.
On the demand side, due to factors including restrictions on power use, steel consumption in tension declined by more than 20% in September from a year earlier, meaning that steel consumption fell faster than supply.
“Both policy environment and market conditions are unfavourable for the steel market. Steel demand is expected to decline further in the fourth quarter,” said a sales manager at a steel pipe company who prefer not to be named.
Since October, real estate and infrastructure have both slowed and overseas demand for the manufacturing sector have been weakening, with output of automobile and home appliances sliding. The factors combined have pushed steel demand into a downward channel,” he said.
In addition, due to saturation in the construction machinery market, a major steel consumer, steel demand from that sector has also declined, said the salesperson.
According to a recent research note from Caixin Futures, demand for construction materials was weak and steel demand has declined faster than expected.
The trend of economic structure adjustment and risk preventions, including liquidity risks in the real estate sector, financial risks and local government hidden debt risks, is continuing, leading to drops in steel demand.
Several industry insiders told Yuan Talks that changes in steel market demand started in October, with plunging steel rebar prices causing particular attention.
Since mid-October, steel rebar futures have been falling, with the main January contract dropping below 5,000 yuan/tonne in late October. As of last Friday, the contract had fallen below 4,300 yuan/tonne.
“We suffer loss when prices hit 5,200 yuan per tonne. Prices falling below 5,000 yuan per tonne means sector-wide losses. The shift from market rally to sector-wide loss happened in a matter of ten days,” said Xiao, adding that all steel makers are suffering loss for their steel rebar production and many have been forced to cut or suspend steel rebar capacity.
According to Caixin Futures report, against the backdrop of weakening real estate sector, infrastructure investment grew at a pace largely in line with apparent demand of steel rebar, adding that the weaker-than-expected infrastructure investment is one of the major reasons for the faster-than-expected decline in steel rebar demand.
Donghai Securities said in a note that market focus will remain on demand in the short term and so far, there hasn’t been signs of notable improvement.
Apparent demand of steel rebar is expected to declined by another 25% this week, and meanwhile, declines in material prices will drive lower steel products’ cost line, leaving more room for steel price declines, it said.
As I have said many times, there is still a huge amount of suspended EAF production to return as coal prices tumble so the glut is only going to get worse for pig iron and its raw materials.
Just stay out of this market’s way. It’s fucked.