Steel profit contraction

Supply is expected to rebound month-on-month
From January to October, the domestic crude steel output decreased by 0.7% or 6.18 million tons year-on-year. In November, the high-frequency indicators reflecting the steel supply showed a downward trend, so the probability of completing the annual reduction task of welded steel pipe in advance in November is relatively high. So, the first quarter of next year, steel supply marginal improvement is expected to be relatively strong.

In addition to the high profit stimulus, there are the following two reasons: first, the current production restriction policy is basically based on the year-on-year calculation basis, taking into account the high base factor in the first quarter of this year, even in accordance with the current production restriction policy of hot rolled steel pipe, the first quarter of next year as long as the daily output of crude steel to reach 2,635,400 tons can complete the production restriction task, far higher than the 2,309,000 tons in October; Second, last weekend, the Central Economic Work Conference proposed that carbon peak and carbon neutrality are the internal requirements to achieve high-quality development, to unswervingly promote, but it is impossible to achieve all at once, which indicates that the general direction of “double carbon” has not changed, but some of the “one size fits all” type of implementation of round steel pipe will be corrected, it is expected that the “double carbon” policy on the steel supply side of the impact will be weakened at the margin.

Demand continues to repair at the margin
Marginal demand repair has been the main reason for the rebound in steel prices since late November. In recent weeks, although the weekly production of rebar has picked up slightly, the inventory of square steel pipe has continued to decline, and the decline has gradually expanded. The inventory data of the latest period is 4,744,600 tons lower than the same period last year. In addition, the gap between supply and demand of the cycle degree of rebar measured by us has turned positive, and it has been above axis 0 for 4 consecutive weeks. Historically, when the data is above the zero axis, prices are slightly stronger. As for the demand in the first half of next year, we think the probability of continuing marginal repair is relatively high. Last weekend, the Central Economic Work Conference set the policy tone of next year as stability, and seek progress while maintaining stability. It is expected that the weight of stable growth will be increased in the macro policy of next year.