Cost will increase support for steel prices

From the revolving situation of rebar and iron ore futures prices, on January 9, the highest price of rebar futures 1905 contract was 3,550 yuan / ton, up 10.66% from the lowest price on November 30, 2018. The highest price of iron ore futures 1905 contract is 517.0 yuan / ton, up 12.64% from the lowest price on November 27, 2018. The price of iron ore once again showed that the leading steel price rose and the increase was greater than the increase in steel prices.

From the perspective of iron ore supply, in 2018, China imported 1.064 billion tons of iron ore, down 1.0% year-on-year. From January to November 2018, China's raw ore output was 695 million tons, down 3.3% year-on-year. In 2019, the growth of overseas mine shipments has gradually slowed down, and the rapid release of production capacity of the four major mines is coming to an end, and new capacity is limited. According to the production characteristics of previous years, the shipments of the four major mines will be reduced in the first quarter of each year due to weather factors such as hurricanes. The output in the first and second quarters will be lower than the third and fourth quarters. From the perspective of domestic mines, in 2018, due to factors such as environmental protection, safety, and restrictions on production of major activities, domestic mines experienced different levels of production cuts. If China's infrastructure and real estate start construction in the spring of this year, the boost in market confidence may drive up the price of steel, coupled with the structural shortage of iron ore supply, or drive the high price of the mine.

In addition, in 2019, the coke market is still facing greater environmental protection and de-capacity pressure, and prices are expected to run stronger. The probability of coal supply and demand continues to be balanced, and the space for price downside is limited. Overall, the cost of raw fuel for steel production will be firmer and the support for cost will increase.

Steel supply is expected to increase in 2019. According to estimates by relevant agencies, in 2019, the new capacity of the blast furnace was 8 million tons, and the new capacity of the electric furnace was 15 million tons. At the end of 2019, the effective production capacity of the blast furnace will reach 1.085 billion tons, and the effective production capacity of the electric furnace will reach 145 million tons. In the case that the central government emphasizes that environmental protection and production restriction are no longer “one size fits all”, although environmentally-friendly production will affect the production pace of steel mills in stages, the overall impact on steel mill production will weaken.

On the whole, in 2019, the contradiction between oversupply in the steel market still exists, steel prices are facing downward pressure, and the price center of gravity will move downward. However, due to the strong price of raw fuel, the support of cost will increase, steel prices will not fall sharply, or will fluctuate around the cost line, and there will be a phased rebound under the influence of policies such as production restriction and consumption start-up.

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