Iron Ore Strong Rise Again, Steel Enterprises Profit Or Narrow In The Second Quarter

        On April 27, Prussian iron ore index reached an all-time high, breaking the 193 US dollar / ton mark; Since then, although there has been a small decline, but the overall market has no obvious signs of cooling down.

Since last year, under the support of China's strong demand, coupled with the shortage of major producers, iron ore prices have surged to the highest value in recent ten years and staged a "Crazy" market. Since then, it has been fluctuating and retreating, but it is still in the historical high value range. Recently, crazy iron ore returns again.

Iron ore market crazy again

Since the end of March this year, under the background of continuous strong production capacity of Chinese steel enterprises and gradual recovery of overseas demand, iron ore prices have been surging upward; On April 19, the Prussian 62% index broke through the $180 / t mark again after more than a decade, setting a new record for iron ore prices since last year's soaring price.

Although some analysts remind steel mills of the negative risks brought about by production restriction, the iron ore market is still hot.

On April 26, Platts iron ore 62% index broke through 190 US dollars / ton mark; On April 27, the index soared to $193.9 per ton, setting a new price record set during the commodity boom in 2011 and climbing to an all-time high.

On April 28, Platts iron ore 62% index fell from its high level to $190.45/t, down $3.45/t, with a monthly average of $178.7/t, still at a historical high.

In the same period last year, the 62% index of Prussian iron ore was only about $80 / T, and now it has more than doubled.

The futures price of domestic main iron ore has also exceeded 1100 yuan / ton, with the highest point exceeding 1160 yuan / ton, nearly double the same period last year; The recent rise in the main contract of rebar is also very obvious.

What is the logic behind the return of "crazy iron ore"? Facing the crazy trend of iron ore, where will China's steel market go?

Why does iron ore price soar

After this year's Spring Festival, the international monetary policy continued to be loose, and the central economic work conference also made it clear that the macro policy should maintain continuity, stability and sustainability, which supported the trend of commodity prices.

As the main iron ore producing areas, Brazil and Australia experienced seasonal production downturn in the first quarter, and the shortage of supply led to the rise of iron ore prices.

In the first quarter of this year, Vale's iron ore output, headquartered in Brazil, achieved a year-on-year growth, but the decline rate was close to 20%, which failed to meet the analysts' expectations; Rio Tinto Group in Australia, due to rain, iron ore production in the first quarter of the same year slightly decreased.

Market analysis previously pointed out that the output of the main iron ore producers in the first quarter was lower than expected, coupled with strong demand from Chinese steel mills, which will further boost iron ore prices.

China is the world's first steel producer, accounting for two-thirds of the world's iron ore production every year, and its dependence on foreign countries is about 80%.

Wang Siya, senior analyst of Lange steel, told reporters of the 21st century economic report that since the end of last year, iron ore prices have been rising all the way, mainly due to the impact of the release of domestic demand exceeding expectations. Although domestic demand has decreased since this year, the global economic recovery has driven the growth of iron ore demand, and the accelerated growth of global crude steel production has played a supporting role in iron ore prices.

Although analysts warned that the production restriction policy of the northern steel plant may be tightened, and the reduction of production capacity is expected to bring negative expectations, the steel mills have high profits per ton of steel, the enthusiasm for production remains unchanged, and the iron ore price is still hovering at a high level.

Many analysts pointed out that at present, the profit per ton of steel of steel enterprises has exceeded 1000 yuan / ton, the highest level since 2018; The daily output of domestic steel enterprises is also high, and iron ore purchasing intention is strong.

Overall, domestic steel prices rose and demand remained strong in the first quarter, domestic crude steel output continued to grow, and the net profit of steel enterprises increased significantly.

According to the data disclosed by the China Steel Association, in the first quarter of this year, the revenue of the member enterprises of the China Steel Association was 1.54 trillion yuan, with a year-on-year increase of 52.28%; Profits and taxes reached 100.4 billion yuan, up 159.94% year on year; The total profit was 73.4 billion yuan, up 247.44% year on year.

According to the data of the National Bureau of statistics, the domestic crude steel output in the first quarter of this year was 271 million tons, with a year-on-year increase of 15.6%, and an increase of 17.3% compared with the same period in 2019.

Wang Siya said that Tangshan, as the leader of China's iron and steel production, once Tangshan's steel production capacity is suppressed, the national total steel production will form an obvious reduction expectation; Although China's crude steel production capacity did rise in the first quarter, it was mainly due to the improvement of capacity utilization, rather than the implementation of production restriction.

Where will the domestic steel market go?

Facing the continuous high iron ore price, how will Chinese steel enterprises deal with it?

At the first quarter information conference held on April 27, Luo Tiejun, vice president of CISA, pointed out that it is unreasonable for iron ore prices to rise too fast. At present, iron ore prices are soaring, and there is a large amount of speculation in anticipation, and the amount of speculation accounts for about $30.

Luo Tiejun pointed out that this year's market speculation has shifted to a mismatch between supply and demand, but the balance of supply and demand in the iron ore market has improved significantly compared with the same period last year. As the mainstream reference subject, the price index is highly concentrated at the supply side, and the dominant power is mostly in the hands of the seller.

Qu Xiuli, vice president of China Iron and Steel Association, said frankly that the current enterprise cost pressure is continuously increasing. In addition, the overall base of the first quarter of last year was relatively low, so it was difficult for domestic steel enterprises to copy their high profits in the second quarter, and the narrowing of growth rate was already a big probability event.

On April 28, the office of the State Council Tariff Commission announced that tariffs on some steel products would be adjusted from May 1; Among them, zero import provisional tax rate is implemented for pig iron, crude steel, recycled iron and steel raw materials, ferrochrome and other products; The export tariff of ferrosilicon, ferrochrome and high purity pig iron should be raised appropriately.

In the same period, the State Administration of Taxation of the Ministry of Finance announced that since May 1, the export tax rebates for 146 hot-rolled and cold-rolled steel products have been cancelled, reducing from the previous 13% to 0.

Wang Guoqing of Lange Iron and Steel Research Center told reporters of the 21st century economic report that as the largest carbon emission industry in the manufacturing industry, the pressure of carbon emission reduction is obvious; Under the background of carbon peak in the steel industry, increasing import and reducing export have become the inevitable direction of regulation and control.

Wang Guoqing said that the purpose of the tariff adjustment is to reduce the import cost of primary products in the iron and steel industry and increase the import volume of related products; The purpose of raising import tariff is to weaken export competitiveness; Promoting the import of primary products such as pig iron, recycled iron and steel raw materials and billets will help reduce the dependence on overseas iron ore.

On the whole, the adjustment of tax policy is expected to transfer some products to the domestic market, which will help to ease the tension between domestic supply and demand, and help to stabilize steel prices.

Liu Xinwei, an analyst with Zhuo Chuang information, said that the core logic of the rise in domestic steel prices is mainly the contradiction between supply and demand. At present, the demand for steel in major industries such as automobiles, household appliances, ships and real estate is at the highest level in the same period of history; In the context of carbon neutrality, Tangshan area has the most stringent environmental protection policy in history, which will also have potential impact on the future steel supply in the market.

"In April, steel prices soared rapidly, steel prices faced with high prices, high inventory, high profits and high start-up. Futures have been discounted, and the fundamental state has pointed to the possibility of adjustment of steel prices; It is not ruled out that import and export tax rebates may become one of the hot spots of speculation, but it is not wise to over hype them. " Liu Xinwei said.

Li Li, chief analyst of Lange Iron and steel king, believes that in the long run, steel prices will remain at a high level, and steel shortage this year will not be ruled out; In the short term, we need to pay attention to the risk of steel price adjustment, but the adjustment range is limited.