SunSirs: Inventory and raw material prices rise, profile and HRC companies' profits shrink

The factors for the Spring Festival in February still remain. In addition to the current demand for epidemic prevention and control, logistics is blocked, the resumption of construction sites is postponed, and various factors overlap. There are two major phenomena in the steel market that affect the profits of steel companies.

First, it is difficult to effectively release market demand, which has led to a continuous rise in domestic stocks of hot rolled coils and profiles, and the increase in inventories is significantly higher than in the past. In early February, the steel industry's key statistical enterprise steel inventory was 18.51 million tons, an increase of 5.45 million tons from the previous period, an increase of 41.7%; an increase of 8.98 million tons, an increase of 94.2%. From the perspective of social stocks, social stocks peaked in the past 2-3 weeks after the Spring Festival holiday. It is expected that the peak level of stocks this year will be higher than in the past. Among them, as of February 21, 2020, the Shanghai market profile warehouse conducted the same caliber survey statistics. The stock of channel steel was 71,700 tons, an increase of 0.12 million tons weekly, and the H-shaped steel inventory was 75,600 tons, an increase of 20,200 tons weekly. HRC inventory was 33.371 million tons, an increase of 44.56 from the previous week.

Secondly, the prices of steel products fell, and the prices of iron ore rose. Due to the decrease in downstream demand and the increase in steel stocks, steel prices have fallen. This week (February 17-21) China's steel price index (CSPI) was 100.55 points, down 1.40 points month-on-month, 4.93 points lower than before the holiday, and 3.31 points lower than the first week after the holiday, and lower than the lowest level in 2019 104.28 points. Among them, according to the price trend of the business club, as shown in the above figure, the hot coil price of the business club on February 23 was 3522.5 yuan / ton, which was 390 yuan / ton lower than the price before the holiday. However, the price of raw materials has steadily increased. According to the price data of the business agency, as of February 21, the average price of 62% PB powder ore in Australia was RMB 671.67 per wet ton, and the price of Brazil's 63.5% coarse powder was 718.88 The price of wet ton and 62% printing powder was 615 yuan / wet ton, up 9.83%, 6.36%, and 8.95% from the February lows, and the year-on-year increases were 4.48%, 10.64%, and 2.79%.

It is difficult to effectively release market demand, coupled with the decrease in the prices of finished products and the rise in raw material costs, which has significantly reduced the profit of steel products. Although steel companies are also deliberately stabilizing the market to take measures to stop production, but due to the overall market supply-demand contradictions, factory and social warehouses still exist. Both show great upward pressure, and the trend of supply and demand mismatch is difficult to change. It is expected that the profitability of steel companies will shrink further in February.

To sum up, SunSirs analysts believe that in the case of difficult to return demand and rising raw material prices, steel companies will inevitably raise steel prices as raw material prices increase to ease their own capital pressure, but downstream demand will be difficult to start in the short term. The status of orders from steel mills can also reflect downstream demand. Most steel mills have already organized orders for February before the Spring Festival, and it is difficult to organize orders in March, but also difficult in April. Therefore, the rise in steel prices is limited, and the specific start-up period is expected to be at the end of the first quarter.

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