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JH-Mech Steel Price Raise in Last 5 Monthes.

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JH-Mech Steel Price Raise in Last 5 Monthes.

At the beginning of the Chinese New Year, news about price increases of various bulk commodities appeared frequently, and related reports on price increases of steel products continued to be screened. After experiencing the continuous increase in iron ore prices last year, its influence is gradually spreading to downstream steel companies and more related industries at this stage.

Looking back at this round of steel price increases, a more obvious turning point appeared in mid-to-late February. Regarding the Steel House Steel Benchmark Price Index, the index rose from around 110 points to the latest around 120 points, an increase of nearly 10%. An earlier round of price increases occurred in mid-October last year when the price index was still around 95 points. Five months later, the cumulative increase has exceeded 25%.

There are three main reasons for the continuous rise in steel prices in the recent period. The first is the impact of the increase in iron ore prices that began last year. The increase in raw material prices directly promoted the increase in steel production costs and passed to the final steel prices; second, with the implementation of the global economic stimulus plan, quantitative easing at home and abroad Driven by the policy, commodity prices have generally risen; finally, the mismatch of foreign steel production and demand has led to a substantial increase in domestic steel exports.

A typical example is the United States, which is the epicentre of the global epidemic. Last year, due to the impact of the epidemic, many steel mills in the United States ceased production and the industry was suffering. In the second quarter of last year, the capacity utilization rate of American steel mills fell to 56%. The easing of the epidemic situation has promoted the recovery of the US manufacturing industry and drove the demand for steel in various industries, such as automobiles, trucks, and household appliances. However, the production capacity of the US steel industry has not kept up, which has caused the supply of steel to fail to keep up, and the resulting price increase.

In addition to the above factors, looking back at my country, the increase in steel prices is also affected by the reduction in steel production. According to the latest news from the State Council Information Office, my country has completed the "13th Five-Year" steel industry target of 150 million tons of capacity reduction two years ahead of schedule and has withdrawn from "zombie companies" with a total of 64.74 million tons of crude steel production capacity. Under my country’s goal of peaking carbon and carbon neutrality, the reduction of steel production will continue. The Ministry of Industry and Information Technology also stated that it will promote the reduction of steel production in four aspects to ensure a full year-on-year decline in steel production in 2021.

While the output is declining, the demand for steel materials has the opportunity to remain strong. Because of the industrial chain, the downstream demand of steel companies is mainly concentrated in the three major areas of construction, machinery, and automobiles. For the construction sector, the state has a relatively strong regulation on real estate, and it may be difficult for the construction steel to increase significantly; however, for the machinery manufacturing and automobile industries, the boom is expected to continue to improve in the past two years, and the steel use in related industries is likely to continue. increase. In the case of unabated demand and limited supply, the price of the steel market may still maintain a strong pattern.

In addition to prices, what impact will the trend of production cuts and price rises have on the entire industry chain? From the upstream point of view, the supply of raw materials may continue to benefit. More typical companies such as scrap steel at the front end of the steel industry will have a substantial increase in profits. For steel production companies, it is more changes in industrial policies that will affect their future development. Downstream traders are profitable, but processing companies have relatively meagre profits.

Looking further, with the reduction of production capacity, the integration of steel enterprises may become an inevitable trend. For some top medium and large steel mills, they may use resource integration to control their output not to decrease. Small businesses must be supported by strong product-market competitiveness and continuous R&D and innovation investment. What will be brought about by the integration will be the continuous improvement of industry concentration.


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