• Prices Review:

As of December 20, 2019, the price of hot rolled coil rose, at first, then fell, but finally rose again, which showed a ”N" word on the whole trend. From January 16 to May 10, hot rolled coil price changed from $520.92/ton to $580.58/ton, prices had rose by $59.66, up by more than 11.4%. Then, hot coil prices had declined until October 18, prices fell from  $580.58 to $504.94, cut down $530, fallen 13%. But later, the prices started to rise.

• Market review:

There are two main reasons for the price increase in the first half of the year:

First, after the Chinese Spring Festival, the iron ore mine accident in foreign countries caused the shortage of iron ore raw materials and caused the price of iron ore to soar. So the price of imported iron ore has risen sharply since the end of January 2019. According to April price data, the average import price of iron ore in April was as high as $89.6/ton, up $15.4/ton from $74.2/ton in January. The cost of a tonne of steel will rise by about $21.41 a tonne from January, compared with a 28 per cent rise at the end of last year and a 40.1 per cent rise in the same period last year. According to Sensirs, the price of iron ore reached the highest level in 2019 on July 16 is $131.08, up $51.49 yuan, or nearly 64.7%, from $79.59 on January 1.

Iron ore raw material prices rise, resulting in hot rolled coil prices are also rising. With the rise of steel prices, stimulate the enthusiasm of steel mills to produce, so that capacity is constantly released, output growth, in turn affect the steel mills demand for iron ore, so that the increase. That makes expectations of a shortage of iron ore quite strong. At the same time, bullish sentiment in the futures market and speculative trading in the spot market have further driven up iron ore prices.

Second, after the Spring Festival, industry started and hot volume demand began to improve. According to the economic performance in the first quarter, the overall economy remains stable and steady; real estate, railway infrastructure, household appliances and other industries in the downstream steel industry have all achieved rapid growth, which has promoted the growth of steel consumption. In addition, China's steel exports rose 12.6% year on year in the first quarter, significantly better than expected. It can be said that the first quarter of the realization of steel domestic demand and export growth.

When the price of raw materials and the downstream demand increase, they influence each other and promote the price of hot rolled timber to increase accordingly.

In the first quarter, macroeconomic data exceeded expectations, the economy showed strong signs of stabilization, steel demand for real estate and infrastructure continued to release, and exports remained benign, allowing the hot rolled coil high inventory and high supply to be smoothly digested. The fundamentals of the steel industry are good. However, in the high supply and high costs and steady demand market, the hot rolled coil  of the first quarter of the enterprise profits but shrink. According to the quarterly report of steel enterprises in the first quarter, among the 46 listed companies in the steel industry of citic, 29 of them saw their net profits decline in the first quarter of 2019 compared with the same period last year, among which yulong stock and bayi steel saw their performance decline by 308.63% and 234.64% respectively. In addition, masteel's operating revenue in the first quarter of 2019 was $2.53 billion, down 3.23% year on year. Net profit was $11.95 million, down 94.09 percent year on year. Ma steel company said in the announcement, the steel industry during the grim situation, the decline is obvious.

The reason that causes enterprise profit not to rise but to fall is that the price of imported raw materials such as iron ore rises sharply, while the rise of hot rolled coil price is far less than that, resulting in the profit margin of steel mills is not large. In particular, the profitability of large steel companies, which mainly produce sheet metal, shrank sharply from the fourth quarter of last year.

Since May, hot rolled coil downstream market is not optimistic. First through "gold three silver four" after the peak season of the industry, hot rolled coil market into the off-season, the demand into a slow release period. Although the steel released by infrastructure needs to cushion the supply, the overall pressure on the steel market has not dissipated, and the fundamentals of supply and demand have gradually evolved into a weak market for increased demand, while the market fear of high mentality.

Because the structure of hot rolled coil market supply and demand has changed into a pattern of strong supply and weak demand, coupled with low profit margins of steel mills, the production enthusiasm has been affected, starting from July, the steel market entered a small downward channel. In September and October, due to the impact of holidays and environmental news, the downward trend of prices was temporarily stable, but under the condition of weak overall demand, the price trend of hot rolled coil from June to November showed a downward trend.

To the middle and late November, before the price of hot rolled coil continued to decline, the stack period of environmental protection production limit news, the steel plant homeopathy maintenance device, so that the output of hot coil limited. However, the national stock of hot rolled coil decreased from 253.85 to 163.85 on 10/08 to 12/2, a decline of nearly 55%, indicating that the demand for hot coil is relatively resilient at the end of the year. At the same time, iron ore prices also rebound; stack futures prices up and hot rolled coil market gained good incentives and rose prices.

To sum up, it can be found that the increase of raw material cost and demand can drive the price of hot rolled coil to rise. However, the mismatch between supply and demand caused by excessive steel supply will cause the price of hot coil to fall. The influence of downstream demand on hot coil price is more prominent. At the same time, the demand of domestic downstream industries diverges in 2019: the demand for real estate is good; Negative growth in automobiles; The growth rate of construction machinery is obviously declining, which has a significant impact on the plate market demand.

Finally, the trend of hot rolled coil in 2020 is expected. Steel exports will be affected by the downward trend in the global economic environment. Therefore, the steel market pressure is strengthening, it is expected that the support of infrastructure investment will increase. The real estate sector remains resilient. Car prices are also expected to recover. Other downstream industries such as machinery, home appliances, shipbuilding and other industries are relatively optimistic. Overall steel consumption is still growing compared to 2019, but the growth rate is slowing, and the apparent consumption of crude steel is expected to grow by about 1.5% year-on-year next year. The supply and demand of steel is loose, and the hot rolled coil inventory has the risk of accumulation; At the same time, the supply of iron ore, coking coal, coke and other raw materials is relatively loose, the price of raw materials is expected to decline, so that the cost of hot rolled timber support weakened. On the trend, hot rolled coil average prices might have a small decline, but the range will not be too big, and steel mills profit margins or further tightening.

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