What's the impact of Tangshan and Wu'an production restrictions on the steel market?
Following the June 23 issue of the Tangshan Municipal Government of Hebei Province, "Notice on the suspension of production by steel enterprises in the city", on July 8, Wu'an City, Hebei Province issued the "Wu'an City 2019 Steel Coking Cement Industry 3rd Quarter Air Pollution Control and Control Implementation Program", requiring that from July 1tototototouin to August 31, Wu'an City 14 iron and steel enterprises in accordance with the requirements of the implementation of the wrong peak shutdown policy, in September combined with Wu'an City air quality to determine a separate control plan.
If according to the document requirements, the production limit ratio in July was 33.57 percent, affecting the average daily iron production of more than 30,000 tons, and in August, the ratio of limited production reached 38.73 percent, affecting the average daily iron and water production of more than 40,000 tons. So, Tangshan, Wu'an two-way production restrictions will bring about the impact of the steel market? Take Tangshan limited production as an example, in early July, Beijing-Tianjin construction steel market prices rose by more than 200 yuan / ton, Beijing area Class III rebar prices rose from 3720 yuan / ton to about 3950 yuan / ton, the futures market also appeared a week of volatility pull up, the main contract up to 4148 yuan / ton.
Although steel prices subsequently fell, but the resistance is still relatively strong. The author believes that the impact of production restrictions on the steel market is mainly manifested in the following aspects:
First, the production limit alleviates the contradiction between supply and demand in the low-season steel market. Some industry agencies forecast that in early July, crude steel production averaged 2.4521 million tons per day, down 2.22% from late June. From the latest production figures, crude steel production has indeed declined. From the start rate of blast furnaces, the latest data show that tangshan blast furnace capacity utilization rate of 62.96 percent, this figure is significantly lower than the national average. Even in accordance with the July 2 Tangshan Municipal Government issued the "July city's air pollution prevention and strengthening control program" of the ratio of production adjustment to 42% to estimate that the implementation of stricter, the impact of crude steel production of nearly 3 million tons per month, coupled with Wu'an City production limit, it can be said that the impact on steel supply is still very large.
Although the current steel social inventory is still increasing, supply constraints did not contribute to the warming of demand, but the contradiction between supply and demand has indeed been temporarily eased. Second, the dialectical view of limited production. In Tangshan, for example, despite the implementation of production restrictions in Tangshan, but the rest of the country accelerated production increases, so that the overall steel supply contraction effect greatly reduced. Especially from the long material production point of view, Tangshan accounted for a small proportion, the national rebar capacity utilization rate of more than 80%, a long time the weekly output remained at more than 3.8 million tons high, which shows that Tangshan production limit can not "pull a hair and move the whole body."
The steel market still needs to start from the overall situation of the country, considering the supply of steel as a whole. Third, can the production limit be strictly enforced? Is the effect of restricting "one size fits all" production at a discount? From the effect of environmental protection limit, the initial effect is obvious, the worse, so that crude steel production growth against the trend. The reason is that steel mills can cope with too many measures, but the core is still profit-driven.
Under the premise of profit, only from the policy cap production, it is difficult to achieve the expected scale of production. Fourth, distinguish between normal summer maintenance and policy-based production restrictions. Even without an environmental lying policy, steel mills will routinely carry out off-season maintenance in the past year to July and August, which will also affect production. Of course, there are some steel mills to take advantage of production restrictions and increase the intensity of maintenance.
According to the latest data, 62 of the 138 blast furnaces in Tangshan area were overhauled (excluding long-term shutdowns), affecting weekly production of about 100.07 million tons. In short, Tangshan City and Wu'an City limited production on the market has a positive role, in the off-season demand does not give force to the situation, to ease the contradiction between supply and demand, steel prices fall space is not big. Once demand is booming, steel prices will usher in new upward opportunities. The author believes that, from the time point of view, the rising market has been getting closer and closer.