1605 contract exists space to continue to explore

Since the beginning of winter, the domestic steel market has not only faced the difficulty of exporting, but also fell into the dilemma of falling demand for steel in the construction industry in the off-season. The loss of steel mills has increased, coupled with many unfavorable conditions such as tight cash flow and rising yields caused by smoggy weather at the end of the year. Steel production has declined from the previous month, and raw coke demand has shrunk further.

Steel market supply side reform efforts increased

At present, China's economic downward pressure has increased, there are cyclical factors, but also structural factors, but the weakening of the demand side caused by the imbalance of economic structure is the root cause of the decline in economic growth. In order to improve the contradiction between supply and demand, the central government has begun to intensify its efforts in the reform of the supply-side structure on the basis of summing up the experience of the previous demand-side regulation. To alleviate the oversupply in the steel market and solve the problem of smog, it is one of the solutions to reduce the capacity of steel plants with high energy consumption, high pollution and high input.

According to my steel network forecast, after the winter, the market demand shrank, the prices of finished products accelerated, the losses of steel mills continued to expand, and the production of production decreased again. In November, the national crude steel output showed a downward trend – the average daily output was 2.01 million tons. The chain was reduced by 28,400 tons, a decrease of 1.39%. In terms of price, steel prices fell overall. In late November, the Mysteel steel composite price index was 71.42 points, down 5.77% from the previous month.

From the author's understanding of the situation, in December, steel mills will increase production efforts, steel supply will continue to decrease, which is obviously not conducive to late coke consumption.

Steel industry PMI continues to decline

Steel industry PMI continues to decline

The fourth quarter is usually the low season for domestic steel market consumption. In addition, the recent international market has launched an unprecedented anti-dumping action against China's steel exports, making it difficult for steel mills to export. In the state of sluggish export and domestic sales, steel mills are weak in sales, funds are severely strained, inventory in the factory increases, and losses are deepened. It is understood that after Shanxi Haixin Steel ceased production, Tangshan Songting Steel Plant also announced the suspension of production last month. This is the second steel mill of 5 million tons and above to stop production due to high debt and capital chain pressure. The entire steel industry has a haze of prosperity.

According to reports, in November, China's steel industry PMI was 37.0, a decrease of 2.7 percentage points from the previous month. It was below the glory line for 19 consecutive months, and the index fell three consecutive times and hit a new low. Among them, Hebei Province, which has a high concentration of steel mills, its PMI in the steel industry fell by 6.1 percentage points in November to 34.6%, the second lowest this year, and it was below the line of glory for six consecutive months, indicating The operating environment of the steel industry in Hebei Province continues to deteriorate.

Coke market is hard to say optimistic

Under the frequent "cold wind" of the domestic steel market, the days of coke enterprises are naturally not good. At the end of last month, the price of coke in the northern region continued to fall. The purchase price of coke in Hebei Iron and Steel Group was lowered by RMB 30/ton, and many steel mills fell or planned to fall. As of November 27, the Mysteel coke index was 654.2 points, down 3.05% from the previous month. At present, the average operating rate of coking plants in Shanxi is about 70%, and the loss of coking plants is large, exceeding 100 yuan/ton.

At this stage, in order to reduce losses, steel mills continue to suppress coke prices, maintain low water level inventory, and carefully purchase coke, coking plants can only be forced to accept price cuts. Taking into account the increase in steel production in the later period, the contradiction of coke supply exceeding demand will once again be highlighted, and its price still has room to fall.

In summary, the domestic steel market is in the “cold winter”, steel demand is sluggish, steel mills are difficult to sell, which in turn forced steel mills to cut production. In addition, the current supply-side reform policy and environmental protection efforts have also tightened the capacity of steel mills. It is expected that steel production will decline further in the future, thus reducing the demand for raw coke and forcing the price to continue to fall. The author believes that the coke futures price has not yet bottomed out, and the 1605 contract has room to continue to explore.