Weekly iron and steel report: supply strictly limited, demand margin or warming Ⅰ

General  view this week---

1. External factors disturbed the supply side and dragged down the manufacturing PMI in August. In August, China's manufacturing PMI was 50.1, down 1.3% month-on-month, to the edge of the boom and bust line. Get the high quality graphite electrode products. Under the background of the economic data overall decline in July, the manufacturing PMI further weakened, and the market's concern about future demand became more and more heated. After the data were released, most commodity prices fell significantly. Nevertheless, after decomposing the indicators and stripping the cocoon, we believe that although the demand is not optimistic, there is no need to be overly pessimistic.

The decline of the drag index this month is mostly concentrated on the supply side, and is greatly disturbed by external factors. Specifically, the new orders were 49.6, down 1.3% month-on-month. Due to the impact of limited power production and dual control of energy consumption, the orders of energy intensive industries decreased significantly, which had a great negative impact on the outlook of the manufacturing industry. At the same time, due to the flood season, some enterprises were faced with the dilemma --- raw materials could not enter, and finished products could not go out. Enterprises were worried that they could not perform the contract, so they have to reduce orders initiatively. As the demand side, the new order index of food, wine and beverage, medicine, special equipment and other industries is still in the expansion range.

New export orders this month were 46.7, down 1 %, at a low level in recent years, significantly lower than the boom and bust line. On the one hand, international shipping prices soared, containers were tight, and "one box is difficult to find". Some airline prices even exceed the value of goods, leading to profit compression, and enterprises are cautious in receiving export orders; On the other hand, On the other hand, some industries, such as iron and steel enterprises actively respond to the internal cycle, cooperated with the domestic crude steel reduction policy, take the initiative to reduce export orders. Looking ahead, affected by the mutant strain, the epidemic situation in overseas areas has not been effectively controlled. Production activities in India, Pakistan and Vietnam are limited. European and American manufacturers once again turn a large number of orders to China, and some garment factories even arrange orders until next year.

This month, the supplier delivery time index was 48, down 0.91 %. The delivery time of raw material suppliers in the manufacturing industry was further extended. Combined with the low raw material inventory index of 47.7 this month, enterprises are still under great pressure to keep supply and price stable.

The construction industry business index rose to a high of 60.5% this month, 3 % higher than last month, among which the civil engineering construction industry business index rose 6.4 %, and the number of new contracts signed in the construction industry increased significantly. It is expected that with the improvement of the weather and the stability of the epidemic situation in September, the demand for construction steel will gradually increase.

2. Further promotion of production reduction and restriction, and the expansion of supply gap will push up the plate valuation. Supply contraction is expected to further strengthen this week. Due to the severe situation of the completion of the dual control target of energy consumption in the first half of the year warned by the National Development and Reform Commission, Guangxi has strengthened the implementation of production and power restriction for many steel enterprises in the province. Among them, three steel enterprises are required to undertake the task of reducing crude steel in 2021, on the basis of eliminating the plan in September to reduce the output of 20%. Another five steel factories require that the crude steel output and power load in September shall not exceed 70% of the monthly average in the first half of this year. According to the estimation of CISC, the implementation of the policy is expected to affect the crude steel output of about 980,000 tons in September. According to the National Development and Reform Commission "in the first half of 2021 regional energy consumption double control target completion barometer"shows that, in addition to Guangxi, the situation is also grim with double red lights are: Qinghai, Ningxia, Guangdong, Fujian, Yunnan and Jiangsu. The seven provinces (areas) in 2020 crude steel output of a total of 243 million tons, accounting for 22.8% of the national total output.

Under the current situation of energy consumption assessment, as a traditional high energy consuming industry, iron and steel enterprises in the region may face frequent disturbance of power and production restriction in the future. On September 1, Handan formulated the “Production Scheduling Plan of Key Industries in Handan from September to October 2021”, requiring the iron and steel industry to tighten the production restriction ratio by 4.4% on the basis of July and August, and suddenly shut down 20 blast furnaces below 1000 m³ and 20 converters below 100t step by step (mostly capacity replacement and elimination projects).

According to steel union estimation, if the document measures are implemented, it will affect the hot metal output of 13, 700 tons. Recently, 22 steel enterprises released maintenance arrangements in September, which is estimated to affect the daily average hot metal output of 48,500 tons, of which the maintenance volume of hot rolling this month increased by about 200,000 tons compared with August. 

Overall, we believe that with the in-depth promotion of the production restriction policy, the supply will continue to shrink. In terms of total amount, after the above measures are implemented, it is expected that the crude steel output will drop by more than 2.8 million tons compared with August.

In terms of demand, the average daily trading volume of construction steel in China this week has rebounded to more than 200,000 tons, reaching 217,000 tons, increasing by 12.4% week on month, only 4.2% lower than the same period last year.  From the downstream manufacturing orders investigated by the steel union, the month-on-month recovery in September across the board, but the current growth rate is relatively limited. From the perspective of steel plant orders, the orders of most varieties have been saturated, only a slight gap in individual varieties, reflecting that although the steel plant is facing export backflow, there is little pressure on order organization after the implementation of the production restriction policy.

On the whole, with strong demand and weak supply in September, the supply gap will expand and the slope of inventory decline will be steep, so as to support the strong operation of steel price and boost the plate valuation, talk with us for the releated iron and  steel information.