Looking back to 2019, the overall trend of domestic construction steel prices is in a W shape and price shocks. Generally speaking, there are three stages. The first stage is rapid increasing stage. From the beginning of the year all the way to the end of April to the price peak, the highest average price reached $580.82/ton. The second stage is a choppy drop. From late June to early July, the price of building materials fell all the way down to a low, with the lowest price at about $519.95/ ton in late August. The third stage is the rebound. In November, the price of building materials rose for about a month to $586.18/ ton, up 7.65% from the beginning of the year and became the highest price of the year. As of December 21, 2019, the average price of domestic HRB400 specification 16-grade rebar is about $542.26/ ton, up 0.44% compared with the price at the beginning of 2019. The average price of 8 wires of domestic HPB300 specification is about $546.72/ ton, down 1.28% compared with the beginning of 2019. After the rapid rise in the first half year and the shock decline in the second half year, the price of construction steel has returned to close to that in the beginning of 2019.
Steel prices took a cliff-like plunge in late 2018, leaving prices at a low level at the start of 2019. Subsequently, the industry ushered in the first stage of strong operation. On the one hand, the increase of the price comes from raw materials. In February, a tailings dam belonging to iron-ore producer vale in Brazil collapsed, triggering a bout of hype that lasted about three months. The accident sparked fears of a supply squeeze, which led to months of sharp rises in spot and futures prices. Rising coke prices after the Spring Festival have also affected steel costs. The increase in the price of raw materials has brought strong cost support, squeezing the profits of steel mills, making steel mills continuously raise factory prices and transfer costs to downstream users. The other hand is supply and demand. With the arrival of the warm season, construction steel social demand back. Driven by policies such as "One Belt And One Road" and an increase in housing and infrastructure projects, demand has steadily increased. Domestic steel mills, driven by rising prices for raw materials and a belief that it would be profitable to see downstream demand pick up, have a higher incentive to produce. Blast furnace operating rate and capacity utilization rate of steel mills have both recovered, steel supply continues to increase, inventory gradually accumulated. Up to the high steel price in May, the operating rate of 137 rebar mills across the country was 77.38 %, up 5.88 % year on year. The operating rate of 92 wire mills across the country was 72.78 %, up 2.98 % year on year. The build-up of high inventories also contributed to the volatile fall in prices that followed the peak in early may. As the pace of destocking slowed in May, inventories gradually accumulated, leading to oversupply. Traders tend to be cautious, mainly to ship, take the initiative to lower the price, thus forming a greater impact on spot prices.
Since the middle and late June, domestic construction steel prices rebound, a short-term improvement situation. On the one hand, prices are rising because of the good news in futures. Rebar futures main contract continues to be popular, leading to a good business mentality, driving spot prices. On the other hand, iron ore and other raw material prices continue to strong conduction of industry chain. The operation rate and capacity utilization rate of the blast furnace in the steel mill remain high (the operation rate of the blast furnace is 84.4%, and the utilization rate of the blast furnace ironmaking capacity is 84.54%). Stable demand supports the spot ore price, thus delaying the decline of the spot ore. But the construction of steel decline did not therefore contain, the downstream terminal real estate market began to appear depressed situation. Construction site rate and steel procurement decreased, resulting in a weak construction steel market transactions. But construction steel plant production enthusiasm is still high; market supply is not reduced.
By the beginning of July, before the price fell sharply, the operating rate of 137 rebar steel plants in China was 79.02%, up 6.52% year on year, and the weekly output was 3.7632 million tons, up 21.24% year on year. The operating rate of 92 wire mills across the country was 75.15%, up 2.95% year on year. The weekly output was 1.6367 million tons, up 20.21% year on year. The iron ore rally began to decline in July and then plummeted in August, and the introduction of production restrictions in places such as tangshan failed to translate into an immediate drop in inventories. Instead, steel mills' profits were squeezed. Iron ore prices rose slightly in September, rising raw material prices for steel price brings a certain support, perform further strict limit production and environmental protection policy, inventory decline increase, steel prices take a small step back after repeated shocks, but circumstances demand season arrival did not result in the downstream steel purchasing volume is increased, demand less than expected downturn in the market mentality in stocks fell sharply, steel society destocking effect is not obvious, steel spot prices have been running low.
After nearly four months of low domestic construction steel market, the beginning of November steel prices hit bottom rebound, ushered in nearly a month of continuous inflation. At this time, from the supply aspect, destocking effect is worked. The total social inventory of rebar and wire rod reached a low point. At the end of November, the total social inventory of rebar is about 2.85 million tons, down about 7.35 million tons from the peak of 10.2 million tons in March; The total stock of wires is about 912,400 tons, down about 2.28 million tons from the peak of 3.2 million tons in March. In some areas, there is even a shortage of specifications in the spot market. And from the beginning of October, rebar, wire rod futures continued to rise, led to the spot market price increase. The construction site speeded up, downstream demand picked up, procurement increased enthusiasm, market sentiment obvious gyrate and spot prices soaring at the end of the year. Since December, steel resources have the arrival of the goods, specifications and ease shortages.The weather gradually cool, downstream demand slowed down, the transaction performance is flat. At the same time, the turning point of construction steel inventory began to appear, the social inventory began to increase steadily. And futures prices fall to drive spot market prices down, merchants tend to be cautious. Spot market prices low consolidation run, construction steel prices again down.
As of December 21, 2019, the average price of HRB400 16 grade rebar in China is about $543.55/ton, up 0.44% compared with the price at the beginning of 2019. The average price of 8 wires rod of domestic HPB300 specification is about $547.98/ton, down 1.28% compared with the beginning of 2019. Northeast, southwest, central China and other places of bad mood, prices have also dropped significantly; East China and north China region as weak mentality, but the overall resources is still tight, prices is given priority to with modest decline.Near the end of the winter storage, the construction site also entered the end. Downstream demand continues to fall. Although the social stock of steel is slowly increasing, but the increment is limited. There will not be a big supply and demand contradiction in the short term. It is expected that the afternoon will be dominated by a narrow range of shocks.
Combined with previous data analysis, the performance of construction steel demand in 2019 is relatively stable. Price fluctuations are mainly due to changes in supply and demand and raw materials. Under the condition of stable production and balanced supply and demand of the steel plant, it is expected that the price of rebar and wire rod will operate steadily in the first quarter of 2020, and the demand will be released in March. In the third quarter, will be a strong demand season, and then fell at the end of the year.
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