[Latest News] The Price Increase Of Raw Materials Has Swallowed The Profits Of Steel Mills, And The Prices Of Steel Products Have Increased!

- Feb 20, 2021-

Steel mills have recently raised product prices one after another. Behind this is the continuous increase in the prices of raw materials such as coke and iron ore. Steel mills hope to transfer cost pressure through price increases. The increase in steel prices has a greater impact on downstream steel companies, and the contradictions among raw materials, steel mills, and downstream steel companies continue to intensify. Related industry associations are figuring out the impact of steel prices on steel companies.

Steel mills raise product prices

Regarding the reasons for the increase in steel prices, "mainly driven by costs and expectations. The prices of raw materials, iron ore and coke continue to rise, and the cost pressure on steel plants has increased. Steel plants have raised their ex-factory prices to ease cost pressure." Lange Steel Research. Center director Wang Guoqing told a reporter from China Securities Journal.

Steel Chief Analyst Tang Chuanlin told reporters: "After the price increase, many steel mills are still unable to cover the increase in costs, especially those with weak bargaining power."

Looking back from the industry chain, the reason for steel mills to increase prices more often comes from price increases on the raw material side.

"Since August 2020, coke prices have continued to rise and have experienced 14 rounds of increases. The first 10 rounds have increased by 50 yuan/ton each time, and from the 11th round at the end of December 2020, each increase has been 100 yuan/ton "Wang Guoqing told a reporter from China Securities News.

In terms of iron ore, data from Shanghai Nonferrous.com shows that on January 25, the average price of the MMi 62% iron ore spot index was US$168.73/ton.

Tang Chuanlin told reporters, “From the current situation, the coke inventory of steel mills is still declining. Coking plants have more coking coal replenishment, but the coking plants’ own inventory is at a low level.”

The research report released by Jinxin Futures on January 25 showed that the total coke storage was 6,621,500 tons this week, a decrease of 213,700 tons. Independent coke enterprises' inventories continued to be low, steel mill inventories fell more, and port inventories declined slightly. In terms of coke inventory in steel plants, this week was 3.923 million tons, last week was 4.15 million tons, a decrease of 191,900 tons. In terms of different regions, the coke inventory of steel mills in East China decreased by 50,600 tons, and the coke inventory of steel mills in North China decreased by 88,800 tons.

Shanxi Jincheng Iron and Steel Holding Group Co., Ltd. recently issued a notification letter stating that the price of coke has risen in 14 consecutive rounds recently, with a cumulative increase of 900 yuan/ton. At present, the profits of coking plants are generally above 900 yuan/ton, but steel plants are in a state of loss. In order to stabilize the long-term cooperative relationship between the supply and demand parties, it was decided to lower the ex-factory price of all coke including tax by 100 yuan/ton.

According to data from the China Iron and Steel Association, as of mid-January, the social stocks of five types of steel in 20 cities were 8.35 million tons, an increase of 640,000 tons from the first half of January and an increase of 1.05 million tons from the beginning of the year. The stocks have rebounded rapidly recently. Among them, the rebar inventory increased the most, and the inventory of hot-rolled coils, cold-rolled coils and medium and heavy plates increased slightly.

"Social inventories are rising, and traders are not willing to store winter storage." Tang Chuanlin said, "Demand is expected to rise in March, and the current order situation is good, and inventories are expected to drop significantly after the Spring Festival."

Wang Guoqing said: “The market is currently in the off-season in demand. Coupled with the prevention and control of the epidemic, many construction sites in the north have closed early. The weak market transactions, coupled with high prices, and the low willingness of traders for winter storage and downstream stocking, make steel mills and Social inventories have risen. Judging from the current situation, the market is expected to show a phased weakness before the Spring Festival, and may rise slightly after the Spring Festival. The specific situation depends on the resumption of construction projects and the release of demand after the festival."

Industrial Securities believes that the winter storage policy of steel mills has been introduced one after another, and the cost of winter storage has increased by about 500 yuan/ton year-on-year. The proportion of traders’ winter storage has decreased, and some steel mills have increased their self-storage; taking into account the reduction of electric furnace production and the high price of raw materials, the price of rebar Or have support.

From:China Securities Journal