Steel prices in southern China may easily rise but never fall in October

Looking back on September, domestic steel prices showed a volatile upward trend. With the obvious upgrade of traditional production restrictions and supply shrinking beyond expectations, the price increase of construction steel in South China ranked the highest in the country, with Guangzhou having the largest increase. In terms of sheet metal, with the increase in related varieties and the continuous reduction in the production of hot coils, steel mills have a strong willingness to push up, superimposed demand recovery, and sentiment drives price increases. In terms of scrap steel, the reduction in output of electric furnaces and the reduction in production of blast furnace plants have reduced the amount of scrap steel used, resulting in a sharp decline in scrap demand and a drop in prices. On the whole, the major steel varieties in South China in September showed a pattern of strong finished products and weak scrap steel.

As of the end of September, the total steel inventory in major cities in southern China was 2,825,400 tons, a decrease of 352,600 tons from the beginning of the month, a drop of 11.10%, a large drop, mainly due to the impact of steel mills' production restrictions, and the obvious reduction in output. The data shows that Guangzhou cold-rolled inventory increased slightly, while the remaining varieties all decreased. Among them, the steel inventory in Guangzhou area was 1,114,400 tons, a decrease of 197,200 tons from the beginning of the month; the total plate inventory was 1.2274 million tons, a decrease of 76,200 tons from the beginning of the month. Looking back on September, due to the dual control of national energy consumption in southern China, steel mills limited production and electricity, and most steel mills had a significant contraction in output, and the supply-side structure continued to be weak. Data show that in August 2021, the average daily crude steel production in southern China was 180,000 tons, a month-on-month decrease of 13,000 tons, and the output has shrunk significantly. In the short term, on the one hand, steel mills in southern China continue to implement production shutdown and production reduction measures, and the output reduction pattern in this region may not be significantly alleviated in the short term. This directly leads to continued discounts on agent resources by steel mills this month, and merchants have limited sales resources; On the one hand, in October of the previous year, Northwood started its southward move. This year, due to the high prices in East China, and the steel mills’ production restrictions are greater than in South China, the shortage of resources for some specifications is relatively serious. Therefore, most of Northwood will be sent to East China and South China in October. Areas or only a small amount of northern materials will be stored in the warehouse. Therefore, it is expected that steel stocks in southern China may continue to decrease in October.

Regarding the market outlook in October, at the macro level, the national policy has repeatedly emphasized the use of market-based methods to stabilize the prices of bulk commodities, and macro policy adjustments may create certain resistance to subsequent steel prices. From the supply side, steel mills in Guangdong, Guangxi, Fujian and other steel mills have implemented production restriction and production reduction measures to varying degrees. Under the requirement that crude steel output in 2021 does not exceed the requirement of 2020, the upper limit of electricity will be affected. Measures related to production reduction may continue to be implemented, and the supply-side structure may continue to be weak. From the demand side, the overall spot transactions in South China in September were better than in August. In addition, the traditional peak season in South China will usher in October, with high steel consumption capacity, and spot shipments may continue to rise. In terms of inventory, according to the inventory data on October 7th, the four regions of South China, Guangdong, Guangxi, and Hainan increased slightly. Fujian Province improved due to public health incidents, logistics resumed, spot demand levels increased, and inventories decreased significantly; later due to steel mills Production continues to shrink, coupled with the arrival of North Materials or less, steel inventory in southern China may continue to decrease in October. In terms of mentality, because prices are at an absolute high level, the early low-cost resources are profitable. A few merchants in southern China are afraid of high prices and choose to make a profit. However, due to production restrictions and other factors, most steel mills and market traders are still cautious about the market outlook. Mainly bullish mentality. Based on various factors, it is expected that steel prices in southern China may rise but never fall in October.