Home » Four major factors have led to the “flash crash” of iron ore prices that have been bullish for more than two years! Can A-share steel stocks be “a blessing in disguise”? | Daily Economic News

Four major factors have led to the “flash crash” of iron ore prices that have been bullish for more than two years! Can A-share steel stocks be “a blessing in disguise”? | Daily Economic News

by admin

Since the second half of this year, domestic iron ore futures have experienced a round of rapid decline. The current iron ore futures price has fallen by more than 40% from the highest point in May this year.

The “Daily Business News” reporter combined the views of many industry professionals that the main reasons for the recent sharp decline in iron ore are: steel mills’ production restrictions, high inventories, possible weakening of downstream demand, and a strong US dollar.

As we all know, iron ore is one of the main costs of steel mills. So this round of sharp decline in iron ore prices, can domestic steel mills enjoy the dividend of “reducing costs and increasing efficiency”? Can the steel plate of A-shares be “a blessing in disguise”?

Several big “pushing hands” behind the sharp drop in iron ore prices

Since last year, iron ore prices have staged a “crazy stone” play. Choice data shows that from April last year to May this year, the largest increase in domestic iron ore futures prices was as high as 150%.

However, in recent months, “Crazy Stone” has begun to experience a cold snap. According to statistics, the current iron ore futures price has fallen by more than 40% from the highest point in May this year.

Based on the opinions of many industry insiders, the reporter believes that the main reasons for the recent sharp decline in iron ore are: steel mills’ production restrictions, high inventories, possible weakening of downstream demand, and a strong U.S. dollar.

An analyst in the steel industry of a securities firm told reporters that the recent decline in molten iron production has led to a decline in demand for iron ore. In addition, the market also has strong expectations of steel mills being restricted in production. This is the main reason for the sharp drop in iron ore prices in the recent period. Factors.

Recently, the statistics released by the Bureau of Statistics showed that the average daily output of crude steel in July was 2,799,700 tons, the lowest value since April 2020, down 10.53% from the previous month; the average daily output of pig iron was 2.35 million tons, down 7% from the previous month; The average daily output was 3.581 million tons, down 11% from the previous month.

See also  Apple: CEO Tim Cook pay cut by more than 40%

A researcher in the futures industry pointed out to reporters today: “Limiting production is the main reason for this round of iron ore plummet, and price factors cannot be ignored. Since 2019, the price of iron ore has risen all the way from RMB 4 to 500 per ton. Rising to around 1,300 yuan, it has nearly doubled and lasted for more than two years. So once the fundamentals reverse, prices are prone to rapid decline.”

In addition, the current high stocks of iron ore are also a major negative factor. According to statistics from the Tianfeng Futures Research Institute, my country’s iron ore port pressure is still serious. On August 16, 2021, Reuters my country’s 7-day moving average iron ore arrivals increased by 14.14% week-on-week and 27.11% month-on-month; among them, the arrivals of Australian mines increased by 2.58% week-on-week and 9.32% month-on-month; Brazilian ore arrivals Port volume was flat on a week-on-week basis and increased by 13.5% month-on-month. Judging from the data of Reuters to the port, the phenomenon of iron ore pressing in the port is still serious.

Tianfeng Futures Research Institute pointed out that from a 5-year historical perspective, the current iron ore inventory is in the upper middle position. With the continued implementation of the policy of reducing crude steel production and the subsequent expansion cycle of overseas mine production capacity, port inventory may continue to accumulate. At present, the iron ore transaction volume of major ports has dropped to the lowest level in the past two years, and the port spot transaction atmosphere is still pessimistic. When there is no obvious peak consumption season in the terminal market, port transactions are unlikely to pick up.

It is worth noting that the prices of international commodities such as crude oil and copper have been falling recently, not just iron ore. At the same time, since June this year, the US dollar index has shown a wave of continuous rebound.

The minutes of the Fed’s July interest rate meeting released this week showed that the Fed’s hawkish signals were relatively strong, and this indirectly led to the decline in commodity prices. Some commodities can even be described as a tragic drop, such as the recent record high tin price. On Thursday, it even plunged by more than 10% in intraday trading.

See also  A future as a satellite launcher for the Garibaldi aircraft carrier

The above-mentioned futures industry researchers believe that the recent significant decline in the prices of various commodities reflects the market’s concern that demand may weaken. The cargo (iron ore) is serious, the superimposed production restriction has increased, and the economic data has slowed down, which has led to a concentrated outbreak of panic.”

Falling iron ore releases steel mill profits

This Friday Shenwan’s 28 first-level industries’ rise and fall rankings

This Friday, the A-share pharmaceutical and consumer sectors, which are heavily held by institutions, saw a sharp decline, which directly dragged down the performance of major indexes. Among them, the ChiNext index fell by 3% during the intraday session. However, the steel industry rose against the trend this Friday. According to statistics, the Shenwan Iron and Steel Index (801040) rose by 1.45% this Friday, ranking first among 28 Shenwan first-level industries.

In the first half of this year, although the price of iron ore futures once soared to 1,350 yuan/ton, setting a new high for many years, according to the 2021 mid-year report released by the A-share steel company, the steel industry was not affected by the cost side in the first half of this year. As a result, the performance of most steel companies has increased significantly year-on-year. According to statistics from Choice, as of now, in the A-share steel sector, there are as many as 12 companies that have reported a year-on-year growth of more than 100%.

In this regard, the above-mentioned brokerage steel industry analysts told reporters that this is mainly because, compared with the performance of iron ore prices in the first half of this year, the price of steel has strengthened during the same period.

In fact, this year, steel stocks have performed a lot better than the constituent stocks of the “Mao Index” that has been hit by shorts. As of the close of the market on August 20, the Shenwan Iron and Steel Index (801040) has recorded a cumulative increase of 48.2% this year, significantly outperforming the Shanghai and Shenzhen 300 Index by nearly 57 percentage points.

See also  Too much farmland in the hands of big investors

So, will the sharp drop in iron ore prices in this round of iron ore allow domestic steel mills to enjoy a “cost reduction and efficiency increase” dividend in the second half of the year? Can the steel plate of A-shares be “a blessing in disguise”?

Image source: Everbright Futures Research Institute

The black research director of the research institute of a large futures company told reporters today that the effect of this round of iron ore price plummet on reducing costs and increasing efficiency for steel mills has already appeared. The cost of steel per ton has dropped by about RMB 800. Coke has risen sharply during the same period, and scrap has also been on the rise. The overall production cost of steel per ton of steel has dropped by approximately RMB 600 since July, while steel prices have continued to rise during the same period.”

According to statistics from the Everbright Futures Research Institute, the profitability of rebar per ton of steel in early July this year was only around -200 yuan, but since then the profitability of rebar per ton of steel has continued to rise. As of August 20, the profit per ton of rebar reached 561.62 yuan; it even reached nearly 690 yuan in mid-August.

The above-mentioned black research director pointed out that this year’s steel profits have fluctuated greatly. On the whole, the profit per ton of steel rebar is similar to that of the second quarter of this year, but it is better than that of the third quarter of last year.

The Everbright Securities Metals team recently analyzed and pointed out that in the medium and long term, supply constraints will bring about an improvement in the prosperity of industries such as steel and coal.

You may also like

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More

Privacy & Cookies Policy