Thu. Jun 30th, 2022

From the domestic supply side, crude steel production increased significantly in the first half of the year, with the incremental contribution of iron mainly coming from scrap. In the first half of the year, crude steel production reached 563 million tons, up 59.41 million tons or 11.8% year-on-year; pig iron production reached 456 million tons, up 17.43 million tons or 4.0% year-on-year. Especially in May-June, pig iron production grew negatively for two consecutive months, and crude steel production dropped for two consecutive months. According to the output statistics of the Bureau of Statistics, the contribution of incremental pig iron production to incremental crude steel production in the first half of the year accounted for less than 30%. This indicates that most of the crude steel increment comes from scrap steel, the low base of scrap steel consumption during last year’s epidemic, coupled with high ore prices in the first half of this year, the cost advantage of scrap steel is obvious, so the increment of scrap steel consumption in the first half of this year is obvious.

From the perspective of foreign supply, overseas crude steel production hit a record high, pig iron production has reached a “bottleneck”. Although overseas crude steel production reached 440 million tons in the first half of the year, an increase of 66.86 million tons or 18.9% – already higher than the level before the epidemic, pig iron production has not yet returned to the level before the epidemic, and the gap between its annualized production and that before the epidemic is still around 20 million tons. There is still a large amount of idle or closed blast furnace capacity, with the high cost of carbon due to ESG in Europe, shrinking domestic demand in Japan, and political and military conflicts in Ukraine and Venezuela as reasons to prevent blast furnaces from restarting or leading to their permanent closure. Overseas steel capacity is now fully utilized and year-over-year increases in the second half of the year are limited. Overseas crude steel production is expected to increase by 40-50 million tons year-on-year in the second half of the year, with an annual increase of about 108 million-121 million tons.

From the demand side, the first half of the demand exceeded expectations growth mainly from manufacturing exports and real estate investment pull, overseas major economies to deal with the epidemic financial subsidies significantly increased the income of residents, stimulating the demand for real estate and consumer durables, overseas manufacturing supply and demand mismatch pulled the major manufacturing countries exports, coupled with overseas inventory replenishment and the expansion of global trade led to significant overseas demand January-July The total steel imports were 8. 4 million tons, down 15.6% year-on-year; exports of steel were 43.05 million tons, up 30.9% year-on-year. Due to the gradual narrowing of foreign price differentials and two adjustments to the export tax rebate policy, steel exports are expected to decline month by month in the second half of the year.

Overall, if we do not take into account changes in inventories, assuming that supply is equal to demand, the first half of the global crude steel supply and demand increment of 126 million tons, has exceeded the annual increment of 102 million tons predicted by the World Steel Association, the strong recovery in supply and demand beyond the original expectations, the global black industry chain showed overseas stronger than domestic, raw materials stronger than steel situation. While profits in the steel industry have recovered, with China Steel Association member companies posting profits of 220 billion yuan in the first half of the year, Bloomberg estimates that the three largest mines posted profits of $65.9 billion in the first half of this year, more than 400 billion yuan, far exceeding the profits of the entire Chinese steel industry.

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