Steel mills continue to raise prices and welcome the opening of the new year 2019. In addition to the influencing factors of iron ore price increase, we think there are the following reasons.
1.Low production, low inventory, steel prices will continue to rise.
Due to the cautious market mentality before the Spring Festival and the weak willingness to store steel in winter, it is generally believed that the level of social inventory after the Spring Festival holidays may be lower than expected. However, as the market mentality changes from pessimism to cautious optimism, the change of mentality plays a role in promoting the rise of steel prices.
In addition, due to the impact of the Spring Festival holidays, the crude steel production decline in early February has become a foregone conclusion. The estimated output of crude steel in China is 22.077 million tons, with an average daily output of 22.08 million tons, which is 1.31% lower than that in late January.
With the soaring iron ore prices and the end of the Spring Festival holiday, the enthusiasm of steel mills to resume production has increased, but the actual production days in February are relatively short, so the total steel output data will continue to decline.
According to past practice, steel mills and social stocks tend to rise after the Spring Festival, but the specific data are still uncertain.
During the Spring Festival every year, stoppage of construction site will result in seasonal stock accumulation of steel materials, but from this year's situation, the effect of stock accumulation is not obvious.
Judging from the absolute value of steel stocks, it is less than nearly 3 million tons in the same period of last year's lunar calendar. Low stocks have boosted the confidence of steel mills in bid price, and also made steel traders turn cautiously optimistic about the future trend. We learned in the interview that steel traders are optimistic about the demand in the first quarter, but the premise of optimism is that the futures market should be able to withstand the sharp decline and maintain market confidence.
Comprehensive view
Low steel inventories, low production and gradually warming demand lead to steel price increases. Although futures prices have fallen, iron ore prices will inevitably lead to steel mill cost increases. We expect steel prices to rise tomorrow, but the increase will narrow.
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