Steel prices have risen significantly! Is the industry in a frenzy?

This year's Double Eleven is a bit cold, but the steel industry is hot. With the upcoming meeting between China and the US dollar, as well as the continuous stimulation of favorable policies, the steel industry seems to be in a frenzy in the near future. On the night of November 14th, the threaded steel reached a high of 3962 yuan/ton, and the industry cheered and cheered on the social media.

However, industry insiders remind that steel prices are constantly rising, but the steel market is facing a dilemma of having prices but not a market, with demand still insufficient and shipments still very bleak. The current industry is in a frenzy, and the only factors affecting steel prices are political factors. Moreover, steel prices have been continuously rising, but they are like mirages and castles in the air, wary of the risk of decline.

Since late October, the black sector has sounded the "clarion call" of price counterattack in the off-season under the stimulus of multiple macro positive expectations, such as the statement of the central finance announcing the issuance of an additional 1 trillion yuan of special treasury bond. Recently, the prices of black bulk products such as coal, coke, and steel have increased significantly. The prices of coking coal, iron ore, raw fuels, and threaded and hot-rolled steel have all exceeded the peak prices of the 1990s season. The spot prices of coke have also broken expectations for multiple rounds of price hikes and rapidly increased. From October 24th to the 11th of this month, the main contract prices of coking coal futures increased by more than 20%, and the main contract prices of coke and iron ore futures also increased by more than 15%.

According to data from Business News Agency, the iron ore (Australia) index reached 121.82 on November 11th, and the spot price on Friday was at 991.78 yuan/ton, approaching the 1000 yuan mark. Industry practitioners and analysts believe that the increase in steel raw fuel prices this time is mainly due to two major factors: macro level and industry operating conditions, and the production situation in the production area also has a certain impact. Industry insiders said that the recent macro policies of real estate and the issuance of trillions of treasury bond have boosted the demand for steel, including Shenzhen's support for Vanke, which has also given confidence to the real estate market. Since the coal coke steel industry chain is closely related to real estate, most of the industry is optimistic about the market situation during this period. Li Guangbo, Chief Analyst of China Steel Network Information Research Institute, believes that this round of steel price increase is driven by both macro expectations and the strong increase in low inventory raw materials caused by steel mills not actively reducing production. At the same time, the contradiction in the inventory structure of the five major materials is not prominent. At present, the market price has risen by about 300 yuan/ton from a low level, mainly due to the impact of rising costs. Although the steel market is under structured inventory pressure, funds are more willing to buy long raw materials due to the resilience of steel production and low initial raw material inventory, which has a higher profit and loss ratio. Iron ore prices have finally broken through the previous high this time, and the expected "iron making" meeting has not arrived as scheduled. Goldman Sachs stated over the weekend that due to low inventory and declining production, the iron ore market is expected to experience shortages for the rest of this year, with global iron ore supply reduced from 1.557 billion tons to 1.536 billion tons in 2023. Goldman Sachs expects that the iron ore market will not experience oversupply this year, but rather a shortage of supply. Li Guangbo believes that as an important steel raw material, the increase in iron ore far exceeds that of threaded steel and hot coil, directly due to the relatively low inventory of iron ore at present and the high level of molten iron. However, the underlying reason is not so, there may be some "mysterious" force behind the unexpected rise in iron ore. From the trend of the Singapore Iron Ore Swap Index, the traces of artificial manipulation are very obvious. Due to the low trading volume of the index for a long time, the amount of funds required to manipulate the index does not need to be too much, but it can indirectly drive the rise and fall of Dalian iron ore prices. Supported by multiple positive factors such as market expectations and concerns, steel prices have gradually rebounded and steel companies' profits have gradually recovered. The price of the main contract RB2401 for rebar futures has increased from 3558 yuan/ton to 3908 yuan/ton, an increase of approximately 350 yuan/ton, or nearly 10%. The rebound in futures prices has also driven up spot prices, with Baosteel's latest domestic plate sales price for December 2023 generally increasing by 50-100 yuan/ton compared to November. The price of profiles in Tangshan has risen to around 3930 yuan/ton, with an increase of nearly 230 yuan/ton in this round. Due to climate reasons, the rise in steel prices has weak stimulation for terminal consumption in the northern region. Staff from steel sales enterprises in Hebei, Shandong, and other regions have stated that the market is currently entering a low season, with weak downstream demand. After the price increase, the market still shows sluggish transactions. Several industry chain insiders in Hebei and Shanxi have stated that the low inventory strategy of steel companies in the early stage was the main factor for them to maintain profitability during the downward cycle of the market. However, currently, steel companies are still struggling to maintain profitability.

The manager of a steel trading company in the Tangshan region said, "There may still be room for growth in steel prices." He believes that due to the lower expectations of the Federal Reserve's interest rate hike or the gradual shift towards easing, and domestic macroeconomic policies exceeding expectations, the geopolitical conflicts in multiple regions around the world have intensified, leading to increased inflationary pressure on related commodities, which may gradually stabilize and rise. Some industry insiders are also concerned that the steel price has now reached a high level and there is too much risk in the later stage. The main reason for the current increase is driven by raw materials, especially the speculation of iron ore, and the strong nature of financial speculation has left the scope of supply and demand. At present, there is a monopolistic nature of short selling, similar to the Qingshan Nickel short selling and the Crude Oil Treasure incident. There are many short orders on iron ore futures, and if there are multiple orders, they will have to go up and harvest. If they do not achieve their goals, they will not stop. He suggested focusing on avoiding risks and lowering the inventory while taking advantage of high levels. Because no one knows when it suddenly falls, and when it falls, it is usually very fast and urgent, just like using a bow to shoot arrows, rising slowly like pulling a bow, and falling like shooting arrows. If the steel price is to rise to 4000 yuan/ton, there will need to be macro and peripheral positive factors, and we have not yet seen factors that can support it. Therefore, there is too much risk in the later stage, and it is recommended to avoid risks as a whole. A certain society believes that in the future, it will be decided whether there will be a large-scale increase in steel prices. Firstly, the macro China US interest rate difference will be repaired, and secondly, the weak recovery of Chinese real estate in the industry will be represented by these two driving factors The trend of the global economy and the expansion of total demand. If China takes the lead in restoring its economy, it will first start replenishing its inventory, and then the United States and Europe will fulfill the recession before continuing to replenish its inventory. This way, commodities can reproduce the strong bull market after 2020! But if the big driver of the rise does not come and instead awaits the Great Recession in the United States in advance, then commodities will reproduce the bear market pattern after 2013. Although the absolute price level will not replicate the past low points, the steel mills will have even more difficult times at that time.