Steel: What to do with the lowest profitability in the history of steel mills

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DATE

Aug 28

ChengyueSteel

Core view: overweight The overall black has bottomed out this week. Fundamentally, last week, the steel mill profitability continued to fall to 1.3%, the lowest level of the lowest steel mill profitability in history. However, the supply side of the average daily iron fell sharply by 4.3 to 2.24 million tonnes, the current iron at the lowest level in recent years during the same period in history. According to the maintenance plan, this week's steel mills next week or will usher in the cycle of steel mills to resume production, blast furnace maintenance in August affected a total of 4.33 million tonnes of iron production, compared with July 2.72 million tonnes significantly higher, is expected to bottom out in September iron or pick up trend. Demand side is in the off-peak season switching node, the price of finished products has warmed up, speculative demand began to recover. Inventory, the overall five big material inventory level in the neutral range and did not see a large accumulation of pressure, threaded hot rolled structural contradictions continue to aggravate, hot rolled inventory pressure is still not a key factor in suppressing the rise in prices of finished products. Overall, the black demand side of the seasonal warming trend, the end of the negative feedback, the steel mill profit repair, steel mills have resumed production action, the overall price of finished materials may be subject to the seasonal warming of demand as well as raw materials to replenish the cost of inventory to bring the impact of pushing, showing a staged upward trend.

Monthly difference: bias short The overall finished materials by the weak reality of strong expectations, but the fundamental response in the monthly difference above the continued presentation of the anti-set structure.

Steel mill profit: more than 247 steel enterprise profit rate of 1.3% this week, down 3.46 percentage points from the previous year.

Blast furnace overhaul: more According to our statistics for blast furnace overhaul, the current blast furnace overhaul in August affects a total of 4.33 million tonnes of iron production, compared with a significant increase in overhaul volume in July. Raw materials continuous drop, finished material prices stage recovery rise, steel mill profits have been repaired. Negative feedback came to an end, steel mills resume production in the near future, is expected to start in September, some began to gradually enter the stage of resumption of production, iron production in September or signs of a gradual rebound.

Scrap: neutral According to our calculations, at present, the East China electric furnace plant flat electricity production tonnes of steel loss of nearly 95 yuan / tonne, valley electricity basic profit of nearly 70 yuan / tonne.

Finished steel inventory: short Finished steel off-season weak demand stage, plate continued to accumulate, thread is still in the state of de-stocking. Steel mill production profits continue to go down, iron significantly reduced five material production significantly lower, five material overall inventory level in the neutral range, but structural contradictions intensified. Thread continues to go to the warehouse, hot rolled inventory level is high and keep accumulating inventory, at present, we do not see signs of coil inventory relief.

Market Situation

Steel mill profitability continues to break new lows

Sharp drop in iron

As of 23 August 2024, the average daily pig iron production was 2,244,600 tonnes, down 43,100 tonnes (down 1.88%) from a year earlier; compared with the same period last year, down 8.6%.

According to mysteel research data, this week the 247 blast furnace operating rate was 77.47%, down 1.37 percentage points week-on-week; blast furnace capacity utilisation rate was 84.3%, down 1.62 percentage points week-on-week; 81 electric furnaces capacity utilisation rate was 34.19%, down 1.46 percentage points week-on-week.

Profitability of 247 steel enterprises this week was 1.3%, down 3.46 percentage points from the previous week.

Data source: Steel Union, Zijin

Blast furnace overhaul increased significantly

According to our statistics for blast furnace overhaul, the current blast furnace overhaul in August affects a total of 4.07 million tonnes of iron production, a significant increase in overhaul volume compared with July. Successive prices of finished products, steel mill profits continue to compress, many steel mills into the production profit loss situation. A number of steel mills due to the receipt of orders is not ideal, the production of substantial losses, the blast furnace to reduce production overhaul. At present, the steel mill profits have not seen signs of a significant rebound, is expected to the next two weeks iron will still maintain a daily average of 2.3 million tonnes below a slight downward trend.

Data source: SMM, Zijin

The output of five major materials gradually stabilised

This week, the combined output of the five major varieties was 7,789,400 tonnes, up 0.96 million tonnes (0.1% increase) compared with last week, and 9,375,400 tonnes in the same period of last year, down 16.9% year-on-year.

Among them, thread production totalled 1.606 million tonnes, down 57,700 tonnes (down 3.5%) from last week and down 39.0% compared to the same period last year. HRC production was 3,102,700 tonnes, up 89,000 tonnes (3.0%) from last week and down 2.43% compared to the same period last year.

Data source: Steel Union, Zijin

Long and short process thread production cuts weakened

Data source: Steel Union, Zijin

Non-Big 5 production declined

Data source: Steel Union, Zijin

Daily scrap consumption of steel mills continues to fall

Data source: Steel Union, Zijin

Scrap inventories are relatively low

Data source: Steel Union, Zijin

Thread table demand of 1.99 million tonnes

Table demand bottomed out

In terms of demand, the total consumption of five varieties reached 8.3707 million tonnes this week, up 364,600 tonnes, or 4.6%, compared with the same period last year, down 12.3%.

Thread weekly consumption of 19.934 million tonnes, up 33,800 tonnes, an increase of 1.72%, compared with the same period last year fell 29.7%.

HRC consumption was 3,185,900 tonnes, up 303,900 tonnes, or 10.54%, compared with the same period last year, up 0.8%.

Data source: Steel Union, Zijin

Building materials turnover has a pick-up trend

The 5-day average of building materials turnover was 122,000 tonnes.

In terms of regions, as of August 23, the turnover of building materials in East China was 62,000 tonnes; in North China it was 20,500 tonnes; and in South China it was 39,400 tonnes.

Data source: Steel Union, Zijin

Cement direct supply volume inflection point appeared

Data source: Steel Union, Zijin

Commercial property sales have not improved

Bond issuance accelerates

Overall inventory pressure of finished products is neutral

Threaded hot rolled varieties between the inventory structural contradiction intensified

The five varieties of factory inventory was 4.478 million tonnes, down 171,400 tonnes, down 3.7%. Social inventory was 11.93 million tonnes, down 410,100 tonnes, down 6.1%.

Thread seasonal accumulation of inventory, hot rolls slightly de-stocking. This week, the thread factory warehouse week-on-week decline of 110,100 tonnes to 1.705 million tons (down 6.1%), social inventory week-on-week decline of 277,300 tonnes to 4.8132 million tons (down 5.4%). This week's HRC factory warehouse week-on-week growth of 0.3 million tonnes to 921,800 tonnes (an increase of 0.3%), the community warehouse week-on-week decline of 86,200 tonnes to 3,503,300 tonnes (down 2.4%).

Data source: Steel Union, Zijin

Billet inventories continue to accumulate

This week, steel billet stocks at 55 billet-tuning mills stood at 373,500 tonnes, down 82,000 tonnes from last week and 18.0% year-on-year. Billet stocks at mainstream warehouses stood at 1,345,600 tonnes, up 123,900 tonnes from the previous week and 10.1% year-on-year.