At the end of the year, “winter storage” is a topic that the steel market cannot get around every year. For the northern steel mills, “winter storage” is a necessary means to maintain continuous production in the off-season. For steel traders, “winter storage” is a means of market full of uncertainty. The premise of deciding whether to “winter storage” is the trade-off and balance between expected returns and potential risks. “Winter storage” is a common topic of enterprises, but with the change of winter storage scene every year, the relevant varieties of enterprise winter storage, basis and price are different, and the risk management strategy of derivatives is also different.
At present, the annual “winter storage” of the steel market has been started, and some steel mills in the north have issued a “winter storage” notice. How about the price of steel “winter storage” this year? How motivated are traders to purchase? “Winter storage” market next how to go? Futures Daily interviews industry insiders to find out.
The fourth quarter market off-season is not weak
For the reasons why the steel market is not light in the off-season this year, Tu Weihua, a researcher of the black department of Baocheng Futures, believes that first, domestic macro expectations are strong again, first, The State Council issued trillions of special government bonds, adjusted the budget in the fourth quarter, and the policy signal is strong. Second, the real estate favorable policies continue to be launched, recently the central bank and other eight departments specifically mentioned to reasonably meet the financial needs of private real estate enterprises, and the willingness to stabilize the housing market is strong. The specific measures of the “package debt package” have gradually landed to ease market concerns. Third, the cost side gives strong support to steel prices, because most of the raw materials show a low inventory pattern, in the winter storage and replenishing expectations, supply disturbance and other logical support of raw materials trend is strong, at present, the third round of coke ups and downs, the corresponding iron ore Platts price index stands at $130 / ton, raw material strength brings steel costs continue to move up, The cost of hot metal in East China has risen to more than 160 yuan/ton since November, and then boosted the rise in off-season steel prices. Fourth, the contradiction between supply and demand of steel itself has not appeared, although steel demand has entered the off-season, and the supply of five varieties of steel is relatively high, but by the off-balance sheet demand and export diversion support, the five steel inventories have not seen significant accumulation, and the realistic end pressure is still limited.
In the view of CAI Yongzheng, president of Jiangsu Fushi Data Research Institute, steel prices in the fourth quarter of this year are low and high, showing the characteristics of the off-season is not weak, but from the fourth quarter steel price trend over the years, this is not accidental, it seems to be the norm, the logic of steel prices in the fourth quarter from demand expectations to cost support and policy expectations.
Futures Daily reporter noted that before and after the National Day this year, overseas inflation accelerated downward, and the interest rate hike policy was coming to an end; Commodity prices have stabilized and rebounded, affected by policy expectations, raw materials replenishment before and after the National Day of steel mills, staged to promote the price of ore coke before the steel price rebound, steel mill profits are low or even losses, raw materials to maintain the strategy of on-demand procurement, material inventory also maintained a relatively low level. In addition, since October this year, the issuance of new local special bonds has entered the tail stage, and the scale of bond issuance in the fourth quarter has exceeded 1 trillion yuan. The funds focused on the construction of affordable housing, the construction of dual-use public infrastructure and the renovation of urban villages and other “three major projects”, which better drove the downstream infrastructure investment demand, forming a phased mismatch of supply and demand in the fourth quarter.
At the same time, the price of rebar took the lead in a sharp rebound, especially large specifications of rebar, the initial price rebound of coil is relatively small. However, with the in-depth promotion of the “three major projects” and the improvement of export orders, other steel varieties such as sheet coils also rose. In terms of exports, overseas steel mills in the fourth quarter were also driven by costs and Christmas orders have increased steel prices, domestic steel exports were affected by the depreciation of the renminbi, domestic demand resources and overseas orders in November improved significantly, and coil and other varieties are still the mainstream export varieties.
CAI Yongzheng told reporters that the demand for the “three major projects” is obviously in the eastern coastal region, and due to the ample supply of scrap steel, the profit improvement of short-process steel mills is obvious, the production increase is positive, and the capacity utilization rate rises rapidly. Long process steel mills are trapped in the strong price of coke, production is still at a loss, production is relatively limited, into the November – December consumption off-season, many long process steel mills take the initiative to arrange the end of the repair, supply pressure has been reduced, steel prices in the cost and policy to promote the rebound.
The above series of favorable policies have caused the off-season of the steel market, and how to carry out the “winter storage” of the steel market?
The fundamentals of steel varieties vary
“At this stage, the supply and demand pattern of steel varieties is different.” Tu Weihua said, specifically, the rebar fundamentals continue the characteristics of seasonal weakness, rebar weekly production of the latest value of 2,615 million tons, an increase of 46,400 tons, the supply has rebounded, and the current short process steel mill profits are still better, the follow-up production still has room to improve, low supply of good effect is limited. At the same time, the snow in the north to inhibit downstream demand, the subsequent seasonal decline, weak demand is easy to pressure steel prices, relatively positive is the domestic macro expectations.
The reporter also found that the recent 247 steel enterprises blast furnace operating rate and capacity utilization continued to fall, the latest value of the five major steel products also declined, but the performance difference between varieties, including rebar, hot coil and cold rolling weekly production picked up, while wire and thick plate fell. In addition, the current weekly production of medium and thick plate and cold rolling is at the highest level in the same period in recent years, the weekly production of hot coil is at the median level in the same period, and the weekly production of rebar is at the low level in the same period.
“The national building materials mainstream traders daily trading volume and apparent consumption of rebar have a slight rebound week on week, the overall demand for building materials remains low, rebar production and sales growth rate difference is still slightly below the zero axis roughly stable, inventory pressure is still low; The apparent consumption of hot coil also rebounded slightly week on week, and climbed to a high in the same period, and the apparent demand differentiation phenomenon of rebar still exists, hot coil basically shows a strong pattern of supply and demand, hot coil destorage process is still continuing, last week hot coil production and sales growth rate difference also convergence and close to zero axis, therefore, hot coil fundamentals also do not exist obvious contradiction between supply and demand.” Haitong futures investment advisory department black group leader Qiu Yihong said.
CAI Yongzheng believes that the current long process and short process steel mill profit and production status differentiation. After the National Day, the scrap supply stage is abundant, the furnace cost is far lower than the cost of the long process blast furnace, and even some short-process steel mills have a night production profit of 300 yuan/ton. The cost of the long process steel mill is high, roughly 4,000 yuan/ton, the Midwest regional steel mill is higher, the production cost of the eastern coastal steel mill is 3950-4050 yuan/ton, and the steel mill is cautious in production.
The reporter learned from the industry that although there are “three major projects” in the country to promote infrastructure projects, but mostly concentrated in the eastern coastal region, the central and western regions are relatively limited, and regional price performance is different. Real estate has continued to introduce relevant favorable policies this year, and sales, investment and land transfer have shown signs of improvement. The manufacturing industry situation is relatively better than market expectations, especially the high-tech manufacturing industry with new infrastructure is relatively prosperous, and the demand for electric vehicle industry chain, chip industry chain and mobile phone industry chain is good. Steel demand also presents the characteristics of high-end steel demand is better than low-end steel demand. For example, the demand for cold rolling, hot dip galvanizing and coil based on downstream automobiles, ships, energy supply and steel structure is better, reflecting the characteristics of the high-quality transition period of the domestic economy.
“Hot coil demand toughness is strong, which leads to continued good inventory degradation, the weekly table needs to increase 45,500 tons quarter-on-quarter, another new high in the year, mostly because the downstream cold rolling production is at a high level and export demand is better, but the subsequent two still have hidden concerns, high supply under the cold rolling inventory is difficult to remove, the cold and hot price difference also remains low, once weak it is easy to drag down hot coil demand, At the same time, under the high price of the plate export inquiry weakened again, and the overseas recession is not expected to retreat, the future export demand will be weak.” Tu Weihua said.
Qiu Yihong told the futures Daily reporter, the current spot overall performance is slightly weaker than futures, steel base overall lower, especially in the two weeks the weather in the north began to turn sharply cold, rain and snow weather significantly increased, the performance of the off-season market demand will become more obvious, the lack of strong expectations in futures, the basis is still likely to weaken.
Black industry chain profit difference is significant
“The profit of the steel industry has increased year-on-year this year, showing obvious characteristics of recovery after the epidemic.” CAI Yongzheng said that from the perspective of steel enterprises, due to the different cost structure, the profit situation of steel mills in the eastern region is better than that in the central and western regions; The profit of enterprises based on sheet coil products is better than that of spiral-based building materials enterprises; The profits of enterprises with advantages in the head area are better than those of small scale and single variety tail enterprises, and some small and medium-sized steel enterprises without variety, scale and management advantages continue to lose money and are forced to withdraw from the industry or be merged and reorganized.
CAI Yongzheng introduced that the industry’s quarterly profits this year show the characteristics of gradual repair. The total profit of the industry in the first quarter was 4.84 billion yuan, the total profit of the industry in the second quarter was 6.71 billion yuan, and the total profit of the industry in the third quarter was 20.92 billion yuan. The total monthly profit in October was 3.88 billion yuan. Third quarter industry profit repair is better, but in the fourth quarter, from the current 10-December steel mill profit situation, it is expected that steel mill profit repair efforts less than the third quarter, iron ore, coal coke prices rose more in November, steel prices passively pushed up, it is expected that the monthly profit may decline, it is expected that the industry profit at 2 billion yuan level. Early December so far, the cost pressure is still maintained, although scrap steel, short process steel profits have improved, but the long process steel profits are not good, this month many long process steel actively overhaul production reduction, the recent upward momentum of ore coke has slowed down, is expected this month steel profits at 3 billion yuan level. Therefore, in the fourth quarter of this year, it is expected that the industry profit will not exceed 10 billion yuan, at the level of 8 billion yuan. In this way, the annual profit of the industry is expected to be 32 billion yuan, a slight decline from last year.
As of the week of December 15, the proportion of profitable steel mills in the 247 sample steel mills was 35.50%, which has recovered from the low level, but most steel mills still maintain a loss situation. In addition, under the spot cost accounting, most steel varieties in North China show a continuous and substantial loss situation, including Tangshan billet losses of more than 200 yuan/ton, rebar losses of more than 100 yuan/ton; Accordingly, the profit of most varieties in East China has also fallen from a high level since mid-November, and the current small profit of rebar, while the hot coil loss is relatively obvious. “Because the price of scrap steel has not risen significantly, the profit of electric furnaces has continued to rise since mid-October, and the profit is still better under the average power cost in East China.” In addition, because the price of scrap is much lower than the cost of hot metal, and the supply of scrap is relatively loose, long-process steel mills are also increasing the amount of scrap, so the production of finished steel has not been significantly reduced under the situation of hot metal decline.” Tu Weihua said.
As we all know, the profit difference between the black industry chain varieties is significant, the main profit is still concentrated at the mine end, the profit of overseas mines is very considerable, the steel link data shows that the latest spot profit of high quality powder, high quality powder and high quality powder is 99.6 US dollars/ton, 94.4 US dollars/ton and 99.4 US dollars/ton. At the same time, the profit of the coal mine is also at a high level, Fen-Wei data show that the average profit of commercial coal exceeds 1200 yuan/ton, and the profit of individual regions is more than 1500 yuan/ton. In stark contrast, independent coking plants and steel plants for a long time in a loss situation, coke began to make profits after the third round of ups and downs, the national average profit of 37 yuan/ton, of which Shanxi quasi-primary coke average profit of only 28 yuan/ton, and steel Union 247 sample steel mills profit steel accounted for only 35.05%. Most varieties in North China are in a deficit situation for a long time.
High prices may reduce the willingness of “winter storage”
“Since the start of steel ‘winter storage’, we have to wait and see and see the price of the future market.” Shanghai area steel trader Xiao Lian told the futures daily reporter.
Behind the small Lian insisted on watching, the reporter found that the current price is higher than psychological expectations. Since the middle of October, steel prices started to rise, the current price has risen significantly, as of December 18, rebar, hot coil futures index rose 10.1%, 9.3%, the corresponding Shanghai area spot prices rose 7.8%, 8.1%, the fourth quarter steel prices for the off-season is not weak.
“The Spring Festival will be celebrated on February 10 next year, and now the price is higher than the psychological expectation, if the ‘winter storage’ is carried out now, the time can not start for up to three months, there are more uncertain factors, and the risk is not controllable.” Xiao Lian said.
According to the statistics of public information in the market, as of December 12, 2023, four steel mills have issued 2024 winter storage policies, including 1 in North China, 1 in northeast China and 2 in Northwest China. On December 12, a new steel mill in North China in Inner Mongolia, its winter storage policy shows that the base price of construction steel collection is 4,000 yuan/ton, which is the point price settlement, the single-day settlement amount is capped at 20% of the total contract, and the final unsettled part of the winter storage period is forced to settle in accordance with the price on March 31, 2024.
“According to the current situation, under the background of meager profits in the middle and lower reaches of steel and the continued rise in construction steel prices at the end of October, prices in early December increased by about 7% year-on-year, to a certain extent, raising the expectation that winter storage profits were compressed, coupled with the sudden impact of low temperature weather, market shipments are not very smooth, especially high turnover is more light,” This makes the overall winter storage intention of the market in 2024 low, cautious wait-and-see mood is strong.” Qiu Yihong said.
For the reasons for the above phenomenon, CAI Yongzheng believes that the willingness of steel mills to “winter storage” this year is still not strong, first, in the context of overcapacity, the pace of demand repair is relatively slow. At the beginning of this year, affected by optimism after the epidemic and the reduction of traders’ agents, many steel mills changed into self-storage before and after the Spring Festival. After the first quarter of the market, steel prices fell sharply in the second quarter, and many self-storage steel mills hurt more deeply. Although the policy side is relatively loose this year, but in the context of overcapacity and real estate grinding bottom, once profits improve, relatively fragile demand is difficult to undertake the rapid growth of supply, orders in hand and inventory digestion, will make steel mills more cautious winter storage. It is expected that steel mills will reduce their reserves this year, and production will be cautious. Considering that the original fuel inventories of steel mills are not high at this stage, the cost side has declined, and in the case of relatively stable order conditions, it is expected that profits will improve slightly in the first quarter of next year.
Most steel trade enterprises “winter storage” is cautious, in CAI Yongzheng’s view, although this year’s steel resources are not much, interest rate cuts, reduced reserves after relatively generous funds, financing interest rates are relatively lower, but the two years by the industry price fluctuations, the traders who were shushued out of not a few, especially in the central and western regions to real estate building materials as resources traders, this year’s market resources are expected to be more concentrated to the head, The pricing power of the big traders has increased. From the downstream demand point of view, this year’s “three major projects” projects are also concentrated in China construction, China Metallurgy, China construction and other Chinese state-owned enterprises, the market stock game, low inventory, low capital occupation of the current linkage model in Jiangsu and Zhejiang areas normalized. This year is no exception, steel trade enterprises spot “winter storage” will not be too high, more will choose the current varieties, the current business synchronous operation. This is also the result of thin industry profits, complex market scenarios, and traders’ initiative to change.
According to the reporter’s survey, this year’s “winter storage” merchants are relatively rational, rebar prices at 3,700-3,800 yuan/ton when there is a “winter storage” willingness to account for the largest proportion of 37.29%, the price at 3,600-3,700 yuan/ton when there is a “winter storage” willingness to account for 27.12%, When the price is 3800-3900 yuan/ton and above, there is a willingness to “winter storage” accounted for 16.1%, and when the price is 3600 yuan/ton and below, there is a willingness to “winter storage” accounted for 9.69%. When the price of hot-rolled coil is 3800-3900 yuan/ton, the proportion of those willing to “winter storage” is the highest of 38.14%, the proportion of those willing to “winter storage” when the price is 3700-3800 yuan/ton is 29.66%, and the proportion of those willing to “winter storage” when the price is 3900-4000 yuan/ton is 16.95%. When the price is 3700 yuan/ton and below, 6.54% are willing to “winter storage”.
“At present, the operation logic of the steel market is still a game of strong expectations and weak reality, especially in construction steel.” The contradiction between supply and demand in the steel market is accumulating, the improvement of steel profits promotes the willingness of steel mills to raise production, steel supply remains high, and the corresponding strong expectation is difficult to boost the current demand, and the actual demand is still seasonal weakening; What is relatively good is that the macro strong expectation has not retreated, and the raw material strength has brought cost support, and the steel price has maintained a high and strong operation under the expectation and reality game, but it is necessary to beware of the transaction logic switching to the reality end, and the steel price is easy to be adjusted under pressure.” Tu Weihua said.
Reporter observation: The “safe haven” role of the futures market highlights
In 2023, with the increase of uncertainties in the domestic and foreign economic environment, the role of the futures market as a “safe haven” has become more prominent, and the black commodity futures market has also attracted more and more funds to enter, with the open position, turnover and precipitation funds of black commodity futures significantly higher than in previous years.
This year, risk management companies actively give play to their professional advantages, through a variety of business models such as basis trading, warehouse receipt services, rights trading, over-the-counter options, swaps, forwards, etc., in the futures market through futures delivery, time to cash, warehouse receipt trading and other “conversion” channels, to help enterprises purchase and sales, revitalize inventory, relieve cash flow pressure. Provide personalized and refined risk management service solutions for enterprises, and further highlight the role of risk management in the futures market.
According to the industry service real economy data of China Futures Industry Association, as of September 2023, among the companies actually carrying out risk management business, 89 have carried out basis trading business, 73 have carried out over-the-counter derivatives business, 53 have carried out market making business, and the number of companies carrying out warehouse receipt service and cooperative hedging business is 21 and 1, respectively. The warehouse receipt service business has served 9.584 billion yuan for small and medium-sized enterprises and 812 million yuan for listed companies. In the first three quarters, the cumulative nominal principal scale of OTC derivatives business increased by 13.33% compared with 2022 to 2319.909 billion yuan, and the nominal principal scale of positions held at the end of the third quarter increased significantly by 40.27% compared with 2022 to 448.629 billion yuan, of which the commodity scale increased significantly by 4.6% and 70.6% compared with 2022, respectively. The cumulative nominal principal scale and month-end remaining nominal principal scale of micro, small and medium-sized enterprises and listed companies showed year-on-year growth. In the first three quarters of 2023, the cumulative new nominal principal scale of micro, small and medium-sized enterprises and listed companies increased by 15.63% and 77.36% respectively. At the end of the third quarter, the nominal principal scale of service smes and listed companies increased significantly by 79.43% and 54.25%, respectively. In the first three quarters of 2023, the cumulative basis trade scale of risk management companies was 352.614 billion yuan, a decrease of 130.141 billion yuan compared with 2022, but the cumulative trade volume of small, medium-sized and micro enterprises only decreased by 1.387 billion yuan year-on-year, and the cumulative trade volume of listed companies decreased by 3.519 billion yuan year-on-year. The cumulative number of small, medium and micro enterprises even increased by 956 year-on-year; From January to September, the cumulative size of smes and listed companies in trade services with rights increased significantly by 31.25% and 293.57%, respectively, to 2.621 billion yuan and 1.102 billion yuan.
“This year, black entities generally face sales difficulties, profit imbalances, industrial chain dysfunction and cash flow constraints and other pain points and difficulties, 2024, the steel industry is still facing structural overcapacity, environmental protection and carbon reduction costs rise, raw material prices squeeze, low profits and other multiple challenges and difficulties, so, Production-oriented enterprises should focus on the adaptation of supply to demand, grasp the opportunity to lock plate profits in stages that may be caused by factors such as expected improvement or policy restrictions, and trade-oriented enterprises need to reasonably plan the level of winter storage inventory, and need to lock profits in the beginning of the clearance phase of winter storage resources.” Haitong futures investment advisory department black group leader Qiu Yihong said.
CAI Yongzheng, president of Jiangsu Fushi Data Research Institute, bluntly said that this year’s industry profits are not good, domestic steel mills and traders corporate restructuring and senior personnel adjustment actions have increased, and there is a new understanding of the application of derivatives tools for enterprises. Under the globalization environment, the disturbance of external macro factors has increased, and many enterprises have a deep understanding of the risk management of the industrial chain. However, due to the system and mechanism, the shortage of current talent resources, the tight cash flow of enterprises and the different attention of the decision-making level, it will take time for industrial enterprises to deeply integrate the application of derivative tools into the production and management links of enterprises. In fact, from the perspective of the industry cycle, industrial enterprises should take precautions and actively participate in the risk management of derivatives when the industry profits are good and the boom is high, rather than making up for the problem. Although the industrial environment is relatively difficult at this stage, it should still be firmly laid out, based on the long-term, and continue to promote the work.
