Financial News Agency, November 27 (Reporter Zhang Liangde) China is about to enter the winter steel storage period from north to south, but steel prices have experienced a sharp rebound since the end of October. On the one hand, many steel traders and end users have slowed down their winter storage plans. In some regions, the off-season sentiment is getting stronger. On the other hand, rising steel prices have helped steel companies' profitability recover in the fourth quarter. At the 19th China Steel Industry Chain Market Summit and Langer Steel's 2023 Annual Meeting held over the weekend, many people in the steel industry said that there is a basic balance between steel supply and demand throughout the year, and that the benefits of the steel industry may improve slightly next year compared to this year.

Winter storage sentiment is weakening in some regions, and the regional supply and demand pattern is uneven

Entering winter, due to the weather, there is a clear difference between supply and demand in the steel market in the north and south of China.

The northern region has a tradition of winter storage, but due to the recent large increase in steel prices, some steel traders have a high wait-and-see mood. Zheng Xiaochun, head of Tangxuan Steel Trade in Tangshan, said, “Currently, steel prices are too high, and there are not many for winter storage. If the price falls back to 1,200 yuan, some people in the market may start (winter storage).”

Another industry insider said that due to the injury of some traders in winter storage in the past two years, the market sentiment for winter storage in recent years has been weaker than in previous years. When prices are inappropriate, traders may not store in winter.

However, the weakening of winter storage sentiment has made the off-peak season more obvious in the northern region. The manager of a steel mill owned by Shougang Co., Ltd. (000959.SZ) said, “We have a three-month off-season every winter. In the December, January, and February stages, our strategy will, on the one hand, reduce production, and on the other hand, produce some non-construction steel.”

The market demand situation in Northeast China is weaker than in North China. A business manager of Ling Steel Co., Ltd. (600231.SH) said, “The overall situation of steel mills this year is the most difficult year in the past five or six years.” He explained that the Northeast region produced about 21 million tons this year, but local demand was less than 10 million tons. More than 50% of production requires higher transportation costs to North China and East China, causing strong competitive pressure on steel mills in Northeast China, and some steel companies have begun to adjust production capacity overseas.

A sales manager at 600581.SH (), located in the northwest region, said, “The seasonal differences between winter and summer in Xinjiang are most obvious, and there is almost no demand in winter. The plan is to carry out maintenance from about December as well.”

However, the sales manager mentioned above expressed optimism about the steel sales situation in the region. He believes that Xinjiang has invested heavily in infrastructure construction this year, and that the sales volume of construction steel in the country has increased compared to last year. In the face of increased demand, local construction steel stocks have decreased by about 400,000 tons compared to last year. However, the commencement of several major projects next year will still drive infrastructure investment in Xinjiang, and there is plenty of room for development in the local market.

Entering central China from north to south, the steel market situation is relatively good. A steel mill manager under Anyang Steel (600569.SH) said that in January-October of this year, the company's operating conditions were good for most months, but although there was little conflict between supply and demand, profit margins were still low under the influence of costs.

Some steel companies in East China may be limited by equal control to reduce part of their production capacity this winter. Liu, manager of the marketing department of Jiangsu Binxin Steel, said that due to regional control, at least three local steel companies stopped production and limited production in December, so market supply and demand are expected to be more optimistic.

However, as the main import area for traditional winter materials going south, the steel market environment in South China has begun to change. Zhou Yusong, secretary of Yangchun New Steel's marketing department, said, “This year, the price difference between North and South will gradually shrink, and the volume will drop sharply compared to previous years. Perhaps even with the gradual increase in local production in Guangdong Province, the original supply was less than demand to more supply than demand.”

Summarizing the overall situation in the winter storage market this year, Ma Li, general manager and chief analyst of Langer Steel Network, believes that this year's winter storage market, or because all steel mills have adjusted production as a whole, there is not much pressure on market supply and demand, and the domestic construction steel supply and demand situation may be relatively good after the beginning of spring next year.

The overall balance between supply and demand this year may pick up the industry next year

After entering the winter storage season, steel price fluctuations began to weaken, and the trend of the steel industry throughout the year was basically clear.

Looking back at 2023, Ma Li said that the average price of various types of steel in the country has dropped by about 10% compared to 2022. Among them, the price performance of raw materials is quite varied. The average price of iron ore is basically the same as the whole year, the price of coke is about 20% lower than last year's average, and the decline in scrap is basically the same as the price of steel. Apparent domestic consumption for the whole year may have declined slightly from the same period last year, by about 1.5 percentage points. However, steel exports have increased quite a bit, so supply and demand are more balanced throughout the year.

Some steel companies are optimistic about the development of the steel market next year. Luo Lixin, head of the marketing department of Jianlong Group, said, “I am personally optimistic about next year's market. The macro environment is also in the process of warming. The structure of demand and supply of steel is actually changing. The production capacity of building materials has been transferred directly to hot coils and medium to heavy plates.”

Luo Lixin also said that next year's raw materials will still have a huge impact on steel prices. On the one hand, it shows that iron ore prices are relatively strong, while coking coal supply and demand will still be tight, and raw material prices may be hovering around the edge of profit for steel mills.

Du Jiang, deputy general manager of Xiangtan Iron and Steel Group, also showed the same cautious optimism about the market. He said that next year's market demand will not be as strong as in previous years, but supported by costs, next year's steel prices may be in a steady state of fluctuation next year.

Some steel companies think that the market performance in the first half of next year may be better than in the second half. Liu, manager of Qiuxin Steel, believes that due to the improving demand structure in East China, they will maintain an optimistic attitude about the market for the first four months of next year.

There are also steel companies that have strong expectations for macroeconomic policy performance in the second half of the year. Zhou Guofeng, vice president of the procurement and sales center of Lingyuan Iron and Steel Group, believes that with the introduction of favorable policies, the effects of the policies will gradually be implemented, and the market performance in the second half of the year may be better than the first half of the year. At the same time, he said that the rate of steel price volatility will be relatively stable next year.

However, most steel companies still showed considerable caution in their optimistic expectations. Han Weidong, a senior expert at Langer Steel Network and senior adviser to Tianjin Youfa Steel Pipe Group, said that steel prices will continue to fluctuate from top to bottom this winter and spring, making it difficult for the market to fluctuate greatly. Judging from market demand, the three industries of mechanical, mechanical, and automobile brought an increase of 34 million tons to the steel industry this year, but next year's forecast is that these three industries will only increase by a few million tons, and it is also very difficult for export growth to continue at a high level. At the same time, the recovery in real estate demand in the first half of the year may not be high, in line with the World Steel Association's demand for China's next year. There is zero growth.

On the basis of a balance between supply and demand, industry insiders expect that steel companies' profits will improve to a certain extent next year. Ma Li said, “In a state of basic balance between supply and demand, we expect the average price of steel in 2024 to be basically the same as in 2023. Combined with the commissioning and expansion of foreign mines, iron ore supply may increase by 10 million to 20 million tons next year, while prices of coking coal and coke are also expected to drop slightly, freeing up some profit space for steel companies.”