30% Of Raw Material Price In The Second Half Of The Year

In the second half of the year, with the successive implementation of production restriction policies in various regions, steel production may still be within the downward expectation.

On July 5, the reporter of 21st century economic report consulted the steel bank network and learned that, up to now, the weekly inventory of the national steel market has increased by 2.26%. On July 3, the survey data of my iron and steel network showed that most of Tangshan Steel Enterprises resumed production on July 2, and began to implement the policy of limiting production by 30% from July 2 to December 31, except those steel enterprises which have completed the ultra-low emission targets. At present, the re production of blast furnaces is carried out according to their respective production rhythm. In addition, most steel mills in Shanxi have resumed production in the early hours of July 2.

In an interview with the 21st century economic report, a senior researcher in the industry said that although Tangshan has adjusted its production restriction policy, from a nationwide perspective, as the expected reduction of steel production this year remains unchanged, and the domestic steel production shows a year-on-year increase in the first half of the year, the output is expected to decline month on month in the second half of the year.

The relief of the "chip shortage" in the second half of the year is expected to boost the output of automobile enterprises and stimulate the demand for raw materials. The output of iron and steel is compressed and the demand is rising, and the price of raw materials has room to rise.

China's output may shrink in the second half of the year

China Steel looks at Hebei, Hebei steel looks at Tangshan. According to the data released by the Tangshan Municipal Bureau of statistics and the Tangshan investigation team of the National Bureau of statistics, in 2020, the output of pig iron in Tangshan will be 133 million tons, accounting for 14.98% of the whole country, and the output of crude steel will be 144 million tons, accounting for 13.52% of the whole country.

In March this year, the office of Tangshan leading group for air pollution prevention and control issued the notice on submitting measures for limiting production and emission reduction of iron and steel enterprises, which was implemented from March 20 to December 31, with a reduction ratio of 30% to 50%. This is a specific action taken by Tangshan to withdraw from the "top 10 polluted cities" this year.

According to the calculation results of 21st Century Capital Research Institute and Lange Iron and Steel Research Center, from March 20 to December 31, 2021, the plan of 30-50% production restriction in Tangshan will affect the pig iron output of Tangshan about 30 million tons. According to the 15% converter scrap ratio, it is estimated that the impact on crude steel production is about 34 million tons. Under the same technical conditions, the production of pig iron, crude steel and steel in Tangshan will be reduced by 53.2 million tons, 57.6 million tons and 67.2 million tons respectively in 2021. If it is strictly implemented, the proportion of production reduction will be large and the impact on market supply and demand will be obvious.

And Tangshan also carries on the corresponding implementation to the concrete policy. In the first half of the year, Tangshan steel enterprise environmental performance rating, through the production process level, governance technology and other indicators to develop performance rating rules, the industry enterprises are divided into a, B, C, and the overall emission reduction ratio is not less than 30%. "Tangshan production restriction is significantly higher than the national average level, and enterprises in the region have made great efforts in environmental emission, technology and production restriction," the industry said

It is worth noting that, compared with Tangshan's production restriction policy since March, the above-mentioned industry insiders believe that due to the large intensity of production restriction in the early stage, the policy is dynamically adjusted according to the atmospheric conditions and environmental protection conditions. The reduction of the production restriction to 30% is a slight relaxation. He analyzed, "the control effect of production restriction measures superimposed on pollution emission is gradually emerging, and the ultra-low emission level of steel plants is constantly improving. The carbon emission of 30% of the current production restriction can reach the unified emission level compared with that of the past production restriction of more than 30%

Regional production restriction is on the way

Since March, affected by factors such as greater production restriction in Tangshan area, China's steel market has basically formed a supply contraction expectation. However, the above-mentioned industry personage points out, "the recent investigation report of some provinces and cities shows that the steel production in the first half of this year has increased year on year." Wang Hongyan, an analyst at Hua'an securities, pointed out that high profit stimulation in the first half of the year was the key, and the high price of raw materials boosted the output of pig iron and crude steel significantly.

This industry overall profit upward trend is also reflected in the performance of Listed Companies in the first half of the year. As of the end of June, eight listed companies have issued semi annual earnings growth announcements. Among them, the single quarter net profit of Angang, Shougang, Benxi Steel, TISCO stainless steel, valing steel, Nangang and CITIC special steel all reached a record high.

At the beginning of the year, the Ministry of industry and information technology (MIIT) made the statement of "firmly reducing the crude steel output to ensure that the crude steel output in 2021 will decrease year on year". The above industry personage thinks, "although Tangshan's production restriction policy adjustment, but the national aspect, from the link comparison, the output in the second half of the year will be compressed. At present, Anhui, Gansu, Shandong, Jiangsu and other provinces have put forward requirements for production restriction in the second half of the year. However, the intensity of production restriction remains to be further observed, but the decline in output in the second half of the year is certain. "

Huabao securities analyst Yang Yu also said in his research report that the state has issued the requirements for reducing the pressure, and the specific work will be implemented by various provinces. It is expected that the crude steel reduction policy will be formally introduced in the third quarter after the "look back" work of capacity reduction is reported to the State Council. If we want to ensure that the crude steel production will not increase in 2021, the total output will be reduced by about 61 million tons from June to December, and the steel supply may be reduced in the second half of the year.

At the same time, the demand in the downstream of the steel industry chain may rise, and there may be room for the price of raw materials to rise due to the superposition of production restriction factors. According to the information released by SAIC, the "chip shortage" problem, which has been increasing since the end of 2020, is expected to ease in late July, and may return to normal in the third and fourth quarters. The alleviation of chip shortage may promote the development of domestic automobile industry. It is expected that the start-up of automobile enterprises in the third and fourth quarters will be greatly improved, and the demand for automobile cold-rolled sheet will increase month on month. Previously, Huabao securities analyst Yang Yu estimated that the gross profit of cold-rolled steel per ton increased by 79% in the second quarter, and the gross profit per ton of cold-rolled sheet steel in the second quarter increased by 66%.

The industry also said, "in the second half of the year, the alleviation of chip shortage will help automobile production recover to a certain extent, while the demand for steel will increase, which will benefit the steel industry." Further, the raw material prices may have room to rise with the addition of crude steel reduction factors.

In addition, as of the end of June, the internal and external price difference of cold-rolled sheet was large, among which the United States was 115% higher than that in China. Driven by the high price difference between domestic and foreign prices, Huabao securities analyst Yang Yu pointed out that high value-added products such as cold rolling, which can continue to enjoy export tax rebate, may achieve higher profits.

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