Resonant Upswing in Futures Prices, Can Scrap Steel Build a Bottom and Rebound?
Jul 03, 2024
📈 Price Review: Seasonal Factors Significantly Affect Scrap Steel Prices
As of June 28, Mysteel data shows that the average price of scrap steel in 45 major cities was 2386.0 yuan/ton, a decrease of 22 yuan/ton week-on-week. Last week, the national scrap steel market showed a trend of falling first and then rising. At the beginning of the week, influenced by related varieties, the purchase prices of scrap steel in most steel mills were adjusted down, with a drop of 20-50 yuan/ton. In the middle of the week, with a slight rebound in the futures market, the scrap steel prices, led by Hebei region, saw a slight increase of 20-30 yuan/ton, and by the end of the week, the market returned to a narrow fluctuation trend.
As of June 28, Mysteel data indicates that the price difference between hot-rolled steel and scrap steel was 912.4 yuan/ton, a decrease of 7.8 yuan/ton week-on-week, and a decrease of 9.6 yuan/ton year-on-year. The price difference between rebar and scrap steel was 808.5 yuan/ton, a decrease of 16.5 yuan/ton week-on-week, and a decrease of 63.4 yuan/ton year-on-year. On one hand, uncontrollable factors such as high temperatures and heavy rains in the early autumn month have limited terminal consumer demand, and under the drag of the black plate, the support for the price of finished products has weakened. On the other hand, the current inventory of scrap steel in steel mills is low, and there is a certain willingness to support prices and replenish stocks, hence the anti-fall ability of scrap steel last week was stronger than that of finished products, leading to a further narrowing of the price gap between rebar and plate scrap.
As of June 28, Mysteel data shows that the price difference between scrap steel and iron water in Jiangsu region was 36.1 yuan/ton, a decrease of 38.5 yuan/ton week-on-week, and a decrease of 85.2 yuan/ton year-on-year. Specifically, last week, the comprehensive implementation of coke price increases supported the rise in the cost of iron water, while the adjustment range of scrap steel prices was relatively narrow, resulting in a significant contraction of the iron scrap gap. However, the output of iron water has shown a trend of peaking, while the overall performance of finished products de-stocking is average, and affected by the high transportation volume in the previous period, the arrival of iron ore at the port has rebounded significantly. The cost of iron water may have room to decline, and the cost-effectiveness of scrap steel may further diminish.
🔧 1. Supply Side: Scrap Producers Hold Back Sales, Social Inventory Decline Significantly
As of June 26, Mysteel surveyed 825 scrap steel processing enterprises, excluding steel mill-owned scrap companies, with a total of 1.3031 million tons of unprocessed raw materials and finished product inventory, a decrease of 3.85% from the same period last week. The data shows that the decline in social inventory of scrap steel last week was quite significant, mainly due to the low-inventory steel mills choosing to sign high-priced contracts with large yards last week, which to some extent supplemented the scrap steel inventory, causing small and medium-sized yards to speed up the delivery pace as their expectations for price increases were not met. In addition, due to the scrap steel prices breaking through the merchants' bearable level some time ago, some scrap producers have a mentality of holding back sales, which has increased the difficulty of purchasing raw materials in scrap bases, leading to a downward trend in inventory.
💡 2. Demand Side: Electric Furnace Capacity Utilization Rate Decreases, Maintaining Nighttime Valley Electricity Production
As of June 27, Mysteel surveyed 87 independent electric arc furnace steel mills nationwide, with an average start rate of 70.40%, unchanged week-on-week, and a decrease of 1.96% month-on-month; the capacity utilization rate was 51.37%, a decrease of 2.36% week-on-week, and a decrease of 4.56% month-on-month. This week, Mysteel's survey of independent electric arc furnace construction steel mill average profit loss was 211 yuan/ton, and the valley electricity profit loss was 77 yuan/ton, a decrease of 22 yuan/ton week-on-week. From the data, it can be seen that last week, the scrap steel price continued to operate weakly, driving down the production cost of the electric furnace factory, but because the terminal demand for finished products has entered the off-season, the predicament of steel mills struggling on the break-even line is difficult to improve in the short term. Especially the production during valley electricity is still in the loss stage, with a ton of steel loss of more than 130 yuan, resulting in low production willingness of steel mills, and most electric furnace factories maintain 8-10 hours of night production.
📦 3. Inventory Side: Scrap Steel Resources Tense in Circulation, Steel Mill Inventory Hits a New Low
As of June 27, Mysteel surveyed 300 steel mills with a total scrap steel inventory of 5.0095 million tons, a decrease of 72.5 thousand tons from last week, a decrease of 1.43%; a decrease of 264.5 thousand tons month-on-month, a decrease of 5.01%; a year-on-year decrease of 373.3 thousand tons, a decrease of 6.94%.
According to the data, last week's steel mill scrap steel inventory continued to decline, with the inventory level falling to 5 million tons, setting a new low for 2024. Currently, steel mills have been losing profits for a long time, so they are more cautious about cost control, so even if the arrival of goods is not good for several days, they remain cautious about the increase in raw materials. However, this year, most of the scrap orders have been greatly reduced, and the circulation of scrap steel resources is relatively tense, so when the price breaks the psychological expectation, the willingness of merchants to sell goods gradually decreases, thus leading to the steel mill's naturally low original inventory to be passively at a new low again.
Macro policy supports the bottom of the economic recovery, and funds gradually flow into terminal projects, indicating that downstream terminal demand maintains a certain resilience. However, the depreciation of the RMB exchange rate leads to an increase in the cost of raw material imports, which, while promoting a slight rebound in the futures market, also puts further pressure on steel mill profits. Moreover, the slow cycle of capital arrival limits its impact on the scrap steel end, so most scrap steel merchants are cautious and wait and see. However, considering the strong pull of iron coke to raise the price of finished products in the short term, and the steel mill's scrap steel inventory is at a low level within the year, and the market is looking forward to an important meeting in mid-July, it is comprehensively expected that the scrap steel market will rise slightly in the next two days, with an increase of 10-50 yuan/ton.
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