How does the limited production and power cut affect the price of raw materials?

The rise in steel prices often brings joy to raw material producers or traders who own resources, because raw material prices usually rise with the rise in steel prices, but this limited production limit makes iron ore producers and stocks Business is not happy. Last week, the domestic steel market experienced a “roller coaster” change, which began to fall sharply after September 4th and then fell rapidly. However, it still rose about 3% in the week, while the raw material market saw weaknesses, except for Liaoning, etc. The prices of iron fines in the region have risen slightly, while those in other regions have mainly returned. The price of imported ore has fallen by about US$3/ton. In addition to the rise in coke prices in the southwest, other regions experienced consolidation or a slight drop, and the wait-and-see atmosphere was strong.

According to common sense, the price of coke and iron ore, which is used for steel production, should follow the trend of steel prices. However, due to the unforeseen power production restriction, steel production was affected. The pattern of supply and demand was temporarily broken, and the pattern of supply and demand for its raw materials could not be quickly adjusted to match it, or due to uncertainties about future expectations, there was no preparation for adjustment.

The influence of power limiting on the supply and demand and price of iron ore

Electricity curtailment has a greater impact on steel production and directly affects the demand for iron ore. SMEs are the major contributors to the restricted production. They mainly purchase spot-import mines and domestic mines, and thus have a greater impact on spot ore prices.

The nationwide limited production and power cuts not only have an impact on the steel market, but also have an impact on the iron and steel industry's upstream industries such as iron ore, ferroalloys, and coal, resulting in a reduction in the supply of raw materials. However, the restriction of production has relatively little effect on the production of iron ore. The production of iron ore was not included in the list of restrictions. The limited production and limited electricity will have some impact on iron ore processing, but it is relatively limited. At the same time, more than 60% of the iron ore needed for steel production in China depends on imports. Changes in domestic iron ore supply have little effect on the market.

The impact of electricity restriction on the supply and demand and price of coking coal and coke

As with iron ore, the mining of coking coal has not been included in the list of elimination restrictions, but the coking industry is a relatively polluting industry and a key control target for energy conservation and emission reduction. In Tangshan, Hebei, the limited production of coke is 40%, but the intensity of the coke industry is excessive, but the production capacity of the coke industry is seriously excessive. At present, the operating rate of the industry is only 60%. The enterprises are also in a loss, and the limited production has a certain impact on the entire coke industry. At the same time, power curtailment will lead to a drop in thermal coal prices and a moderate decline in coking coal prices, but coking coal producers are more concentrated in coking coal production companies and have stronger bargaining power. Therefore, the overall impact of this limited-production carbon credit price is small.

Whether the rise of steel price will drive the rise of raw material prices

Iron ore is an important factor affecting the price trend of the steel market. Usually, iron ore prices are in line with the overall trend of steel prices. Therefore, the impact of restricted production, and the tendency of steel prices to deviate from iron ore prices are It may be larger at first, but as time passes, the scissors difference between the two will decrease.

We must take into account that although the restricted production is favorable to the steel market and unfavorable to raw materials, the drop in raw material prices will constrain the rise of steel prices, which will in turn cause further declines in raw material prices.

It is worth noting that the trend of steel prices and iron ore prices will affect each other. If the price of steel and iron ore rise simultaneously, the price growth of steel products will remain in the future; if the price increase of steel products is greater than the price increase of iron ore, In the later period, the increase in steel prices will accelerate; if the decline in the price of steel products in the later period is less than the decrease in iron ore prices, the steel market will not be far behind. We believe that the near-term possibility is that the steel market is up, and the iron ore market is slightly down or weakly consolidating.

However, uncertainties still exist. According to reports, the Ministry of Industry and Information Technology disclosed that the “Limitations on Power Limiting” will also be applied to 14 in Inner Mongolia, Heilongjiang, Jilin, Liao, Shandong, Henan, Hunan, Guangdong, Guangxi, Hainan, Sichuan, Guizhou, Qinghai and Xinjiang. With the promotion of key regions, and under strict control, the country’s efforts to limit production are much greater. The three major mines have greater control over the supply of iron ore and coal resources are being integrated. These will affect the supply and demand of raw materials and reduce the Heavily weighted, it remains to be further observed.