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SunSirs:Forecast of cold rolled sheet market trend in 2020
December 28 2019 16:28:28SunSirs(Molly)
  1. Price trend of cold rolling in 2019

Compared with the sharp rise and fall in 2018, the fluctuation range of domestic cold rolled sheet prices in 2019 is relatively shrinking, with the overall maximum fluctuation range of  $60.32 /ton, compared with the maximum amplitude of $106.35/ton in 2018, a contraction of about 43%. Judging from the trend of the whole year of 2019 , the average price of the cold rolled sheet market of 1.0*1250*C in Shanghai market remained stable and upward. The whole year can be divided into four stages, namely "ups in volatility", "rapid decline", "stable after rebound" and "rapid rise".

  • The first stage: raw material price rose sharply, and the price of cold rolling rose violently (from January to early April)

In early 2019, global iron ore prices soared on the back of the collapse of vale's tailings dam. China, the world's biggest consumer of iron ore, has seen the price of imported ore soar, driving up the price level of the steel industry as a whole. Even in the low end of the domestic steel consumption season, it is difficult to slow down the growth. As a cold-rolled product, although the downstream processing plant has not yet started large-scale construction, but the price rise effect brought by the rise in the factory price of its steel mills, has been enough to support its upward trend under the soaring prices of raw materials. The increase brought the highest price for the first half of 2019 at $628.95/ ton (April 9). Although there was a half-month callback, it was mainly a vacuum period of short-term purchase demand caused by high prices, and it was a price reduction promotion operation by traders to clear the stock. When demand recovered, prices rose again.

  • The second stage: under the combined pressure of demand and inventory, the price of cold rolled sheet falls rapidly. (Mid-April to Mid-June)

As the price of cold rolled sheet continues to be high, the downstream terminal merchants begin to resist gradually -- the purchase demand slows down. This also led to the continued build-up of stocks, which exceeded the million ton level for nearly three months. Therefore, under the pressure of low demand and high inventory, cold rolled sheet’s prices continue to fall. In addition, the price of its raw material - hot rolled sheet decline with black line futures at before. The decline in cold rolled sheet accelerated to a new low for the year of $585.71/ ton (June 21).

  • The third stage: steel mills raise prices, so raw material prices rise again. Cold rolled sheet prices rebound and then stabilize (from late June to November)

During the period when the price of cold rolling fell sharply, the factory gate price of steel mills did not have a significant reduction, but implemented a monthly price increase strategy, intended to support the market price. However, under the mentality of "buy up, don't buy down" in the downstream of the terminal, the transaction still went from bad to worse. Until it fell to the cost line of $586.07/ ton, the downstream market demand gradually began to increase and the market transaction improved. It also means continued depletion of inventories, but with little effect. The main reason is that the operating rate of steel mills has always maintained the normal high level of 87-88%, and the spot supply pressure is still as before.

However, during this period, due to the impact of rise in the price of raw iron ore, the price of hot rolled coil rose, which led to a rapid rise in the price of cold rolled sheet. However, the rally lasted only a week before it was aborted due to the low volume of market transactions, and then entered a volatile market for nearly five months, with the overall volatility around $7.15/ ton.

During the fluctuated market, on the one hand, the cold rolled sheet terminal downstream manufacturing industry downturn, resulting in the demand has not been improved, merchants with the main. Among them, automobile production and sales are stable; Home appliances market in the summer peak season did not increase significantly; The shipbuilding market is still weak; All these make cold rolled sheet overall turnover is not so good, so there is no power to increase prices. On the other hand, after the peak of inventory in the first half of the year, traders continued to clear inventory, making the market supply pressure eased. In addition to the decline in steel mill operating rate, steel mill inventory began to decline. Then lead to cold rolling market spot supply pressure again to ease. Combined with the above two points, the cold rolled sheet market appeared nearly five months of fluctuated.

  • Stage 4: logistics load limitation induces market mismatch between supply and demand, and the price of cold rolling rises rapidly (November to December)

Three people were killed and two injured when a viaduct overturned in Wuxi, Jiangsu province, on the evening of Oct. 10. According to the preliminary analysis of the investigation team, the overturning of the bridge deck should be caused by the overloading of transport vehicles. After the accident, Wuxi, Nanjing, Suzhou and other places urgently carried out overnight "treatment overload" operations, followed by Zhejiang, Hunan, Anhui, Henan, Guangdong, Hainan, Fujian and other seven provinces have also carried out a series of operations. As a result, steel trade logistics short-distance transport costs also doubled.

This accident also directly led to the cold rolled sheet market mismatch between supply and demand, prices rose rapidly. Among them, the transfer of resources from the north to the south has been delayed. Because most northern resources are unloaded at ports, freight has not kept up, leading to a reduction in the arrival of goods on the market, which in turn relieves the supply pressure in the southern market and raises the price of cold rolled sheet. Second, since the Spring Festival of 2020 is in the middle of January, the replenishment demand of the downstream terminals is forced to advance at the end of the year, leading to the rapid recovery of market demand and the rise of cold rolling price. Third, due to the limiting factor of freight, terminal inquiry and delivery will "ask more questions", leading to virtual amplification of market procurement, thus accelerating the rise of cold-rolled prices.

Therefore, from a comprehensive perspective, the cold rolled sheet market in 2019, the overall rise is still the main, but the fundamentals still show supply is less than demand. As of December 26, Shanghai market 1.0*1250*C cold rolled sheet market average price at $646.10/ ton, the annual increase in 8%, the year's maximum amplitude is 10.31%.


2. The fundamental market of cold rolling in 2019

  • From the overall supply perspective:

On the one hand, due to the poor performance of downstream terminal demand, the growth rate of production and sales in many industries has slowed down, or even declined, making the demand for cold rolled sheet tepid, slightly depressed price support. On the other hand, due to the soaring price of raw material iron ore, steel mills lost money on production, especially in the first half of the year. Although the profits recovered in the second half of the year, but the whole year is still a small profit, so the willingness of steel mills to reduce production is strong. Data showed that in 2019, the annual average capacity utilization rate of cold rolled sheet was 76.38%, down 4.45% year on year.

In terms of the annual utilization rate and capacity utilization, the average weekly utilization rate is 83.90%. After the Spring Festival of 2019, the production of the steel mill remained above this level, which also showed its confidence in the price of cold rolling, resulting in no significant decrease in the supply of the spot market.

On the other hand, according to the weekly output data of steel mills, the average weekly output in 2019 is 774,400 tons, of which the output in the first half of the year is still higher than that in the second half. Mainly is the first half of the raw material prices are too high, steel mills to lock in profits and higher production enthusiasm. But with cold-rolled sheet prices falling sharply because of low turnover and a lack of raw material support, mills are cutting production. Therefore, the output is the lowest in early June, not during the Spring Festival. Finally, there was a significant reduction in production in November, mainly due to routine maintenance.

  • From the perspective of overall demand:

In 2019, domestic cold rolled sheet demand as a whole remained stable and the transfer was weak, not only the purchase demand of terminals decreased, but also the trade reservoir function of middlemen did not increase significantly. Medium - and small-sized traders are more clearing and lowering operations. The big traders simply kept stocks on hand, and were not willing to stock up even in the first half of the year when prices were soaring. So the weak demand went through the cold rolled sheet market in 2019, dragging down prices.

  • First, from the perspective of market transactions:

The data showed that the annual turnover of 2019 was 15,562 tons, a year-on-year decrease of 910 tons, or 5.55%. Although the decrease is not large, it is equivalent to half a day without cold rolled sheet transaction in 2019 from the daily average, which intuitively shows the low market demand.

  • Sec​ond, from the perspective of automobile production and sales:

According to the authority of the industry, the automotive cold rolling steel accounts for about 20 percent of the total output of annealing cold rolling, but its car peripheral radiation industry has a greater impact, so its production and marketing market is crucial to the cold rolling market.

According to the latest data released by CAAM, from January to November 2019, automobile production and sales totaled 23.11 million and 23.38 million, down 9.0 percent and 9.1 percent year on year. And CAAM expects to sell 25.83 million vehicles in 2019, down 8% year on year. It is important to note that since the inception in July 2018, auto sales year-on-year decline has 17 consecutive months, though partly because "the five and six countries" discharge standard of the transition period, short-term clinch a deal has been in the first half of the spike, but the overall imports and the growing popularity of the hybrid and electric vehicles, to the weakness of the petrol car market as a whole or caused long-term demand.

  • Third, from the inventory side

From the total inventory of cold rolled sheet the overall inventory level in 2019 will remain at 1.35 million to 1.55 million tons. In the first half of the previous two years, the mainstream remained in the range of 1.5-1.7 million tons, and in the second half of the year, the mainstream remained in the range of 1.3-1.6 million tons. Therefore, compared with the previous two years, the inventory pressure in the cold rolling market in 2019 is reasonable. Since the second half of the year, the existence of continuous inventory liquidation has supported the high and volatile operation of the price.

From the perspective of the inventory of steel mills, the average level of the first half of the year is obviously higher than that of the second half of the year. In addition, the new three-year low of 267,300 tons of factory inventories and the overall decline of the market will result in the decline of inventories in 2019, which is good for cold-rolled prices.

From the perspective of social inventory, the average level in the first half of the year is still significantly higher than that in the second half of the year, and there is a persistent phenomenon of destocking. But there were two phases in which inventory levels increased year on year. First, during the first quarter, due to the steel market's off-season demand, as well as the steel mills does not reduce production, resulting in the overall inventory accumulation. The second is May, June and July, due to the impact of the sharp drop in cold rolling prices on the downstream procurement strategy, resulting in the reduction of market transactions, destocking force slowed.

  • Fourth, from the import and export data

Data showed that the export volume of cold rolled sheet in November 2019 was 10,314.26 tons, down 28.29 % year on year. As can be seen from the figure, the export market of cold rolled in the first half of 2019 is good, mainly because the domestic price is on the high side, and the domestic demand in some markets is not good enough to transfer to the export market. Exports in the second half of the year were basically the same as in 2018, mainly due to the shortage of mainstream goods in the market, low inventory in the market, the price rising again, the effect of off-season in the market was magnified, and the transaction was low, so the export market was also depressed.

However, according to the import data, the import volume of cool rolled sheet in November 2019 was 2336.41 tons, up 32.25% year on year and the largest import volume in a single month of the year, mainly due to the shortage of goods in the domestic market, the increase of goods from the international market. And the price is relatively high, the profit is still there.

According to customs data, cold rolled sheet exports totaled 2.355 million tons in the first 10 months of 2019, down 143,000 tons year-on-year, or 5.72%. Cold rolled sheet imports totaled 1.403 million tons, down 209,000 tons year-on-year, or 12.96 percent. The net export performance is -0.06 million tons. Although the proportion of negative value is very small, this is the second negative value since May 2016. It can be seen that in addition to the main hot rolled coil and billet varieties, a small part of cold rolled sheet also exists due to the low import resources attracted by the high domestic prices.


3. Market outlook of cold rolled sheet in 2020

Compared with the "stable rising firm market" of the cold rolled sheet market in 2019, this market in 2020 may appear "stable small rising weak market". Mainly because "although the capacity expansion, output or small decline; Terminal weak production and marketing, the demand delay increase; Imports have improved, exports or increase "six factors. Prices will appear "first down, then up, then down, then up, difficult to break before high" "W" trend, the overall fundamentals of supply and demand are weak, prices firm.

  • First, while capacity will expand, output is likely to fall slightly.

It is learned that by the end of 2019, the effective capacity of cold rolled sheet mills nationwide was 127.18 million tons and 213 production lines. By region, eastern and northern China accounted for 61%. According to the nature of enterprises, state-owned enterprises accounted for 61%. The 2020 capacity will continue to be released slightly, with an estimated additional capacity of 4.5 million tons and four new production lines. It is worth noting that after 2020, 1.8 million tons of capacity and 2 pieces of equipment are scheduled to be added, but the production date is not set. So overall, the cold rolled sheet market capacity expansion, or bring some supply pressure.

However, from the perspective of output, the annual average weekly capacity utilization rate of the current steel mills is 76.38%, and the annual average weekly capacity utilization rate is 83.90%, both of which keep a year-on-year decline. On the one hand, production has begun to decline at current profit levels, but it is still running at more than 80 percent of capacity. Under the capacity expansion in 2020, market supply will continue to increase. In order to keep prices high and profits locked in, as well as the current market low inventory background, steel mills are expected to reduce production in response to the market operation, will be more than productive, and lock in profits operations.

So for the spot market, this is positive.

  • Second, the production and marketing of terminals will weaken and demand will increase later

According to the forecast of CAAM, automobile sales are expected to continue to decline in 2020, with a decline of about 2%. Then the decline in sales also means a gradual reduction in production. Therefore, the demand of the automobile market is difficult to improve in the short term.

However, it is worth noting that six standards have been implemented for half a year, and most downstream demand markets are already facing "upgrading", so the production demand of this part will gradually increase in the second half of 2020. In addition, with the continuous production of the ESP production line of most steel mills, the RZ5 product line has been in the state of trial rolling, and some low-end cold-rolled products may be replaced. In addition, the personalized demand and quality requirements of automobile products in the current market continue to improve, so the corrosion prevention, oxidation resistance and durability of some terminal enterprises' products such as automobiles/home appliances will be improved. As a result, galvanized and other processing alternatives will gradually increase, so the cold rolling market intermediate demand will improve.

So for the spot market, this also has a positive impact.

  • Finally, imports have picked up and exports are likely to pick up again.

The improvement in imports is mainly based on the expectation that the gap between domestic and foreign prices in the current cold rolled sheet market has narrowed, and the domestic production has decreased, and the demand is slowly improving. Exports will increase, mainly because the domestic macroeconomic market continues to maintain steady growth pattern will not change. However, most macroeconomic experts predict a steady decline in the market in 2020, so the cold rolling market as a whole may see a short-term peak in domestic demand in 2020. Then with the gradual opening of international trade, and the development of policies, it is expected that domestic sales to exports will increase again.

To sum up, SunSirs cold rolled sheet analysts believe that cold rolled spot prices in 2020 will present a " high, low, and then high" situation, and the second half of the year is likely to stimulate demand, the peak in 2020.

If you have any questions, please feel free to contact SunSirs with marketing@sunsirs.com.

 

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