steel market logic

The subtle changes in the current steel spot market, mainly because the market interpretation of the impact of the power limit policy. In the eyes of the bullish view of the market, under the production limit, the late market supply of rectangular steel pipe will shrink rapidly, supply and demand mismatch pattern will return. And the bearish view of the market participants believe that the power limit inhibits the release of demand, steel prices affected by weak demand, do not have the conditions to rise significantly. Admittedly, both arguments will take time to test.

The power rationing policy related to the iron and steel industry mainly has two aspects: on the one hand, the high price of ERW pipe leads to the loss of thermal power enterprises, the willingness to generate electricity is not strong, the short-term supply of electricity is insufficient, resulting in passive power rationing. On the other hand, in the “double carbon” (carbon peak, carbon neutral) policy pressure, individual regions in order to complete the energy consumption dual control task, implement “pull off the power limit” policy.
Although the power limit has caused the instability of the short-term trend of hot rolled steel pipe price, there are a lot of market speculation, related parties misunderstanding. As an upgrade of production limit, power limit will further strengthen the constraints of the supply side, help to improve the contradiction between supply and demand in the market.

In addition to the supply side, power rationing will also have a constraining effect on the demand side. This is mainly because the impact of power rationing on manufacturers is more obvious. Under the influence of the power limit policy, the late steel demand has the possibility of further contraction. At the same time, the rise in raw material prices brought about by the policy of limiting production and electricity also forced the manufacturing industry to voluntarily reduce production. For example, during the National Day holiday, major producers in the steel pipe industry halted production for a rare seven days to deal with the market imbalance due to rising raw material prices and reduced downstream demand. This illustrates the impact of the power rationing policy on the demand side. Under the dual influence of the production restriction and power restriction policies, the operation logic of the steel market is no longer dominated by the production restriction policy. The operation logic of the market of square steel pipe will switch from the supply constraint to the operation mode of supply and demand dual constraints. Overall, under the influence of power limiting policy, the late steel market will maintain an upward trend, but due to the differences in the specific implementation of power limiting policy, it is expected that the differentiation of the specific steel varieties market trend will be more obvious.