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Exports in 2019 May be the only factor in the rebalancing of supply and demand for seamless carbon steel tubes
Jan 24, 2019

The export volume is decided by the output and the price difference, which depends on the profit of tonnage steel, and the profit of tonnage steel is determined by the relationship between domestic supply and demand.In terms of output, although the utilization coefficient will drop next year, the capacity utilization rate will remain high, and the steel output still has a small increase compared with this year.In terms of internal and external price difference, with the release of a large number of steel mills, the relationship between supply and demand deteriorates, steel mills' profit drops sharply, and the internal and external price difference decreases accordingly, and the recovery of export intention leads to the increase of export volume.


In general, the export volume of seamless carbon steel pipe is expected to increase substantially in 2019, which will be the only way to balance the supply and demand of iron and steel, and the corresponding export enterprises will have a great increase in opportunities.


According to the supply and demand model of entropy research, the steel quantity used by domestic industry (excluding export) in 2019 is 773 million tons, with an overall increase of 4.46 million tons.Among them, the amount of steel used in the construction industry was 363 million tons, an increase of 3.18 million tons.The amount of steel used in non-construction industries was 410 million tons, an increase of 1.28 million tons.The increase in steel use in the domestic industry in 2019 is mainly reflected in the railway industry, which is expected to increase by 8.38 million tons year on year, while the steel use in other non-construction industries will decrease by 7.1 million tons year on year.On the basis of capacity utilization increase but utilization coefficient decrease, crude steel output is likely to reach 938 million tons, an increase of 12.04 million tons year-on-year.Therefore, without taking into account the export factor, the domestic steel market will be oversupplied in 2019, and tonnage steel profits will remain low or even lose money.So, how to solve the problem of domestic iron and steel supply and demand rebalancing?Through the analysis and reasoning of historical data, this paper shows that export will be the only way to balance the supply and demand of iron and steel market in 2019.


  1. Static estimation: the domestic iron and steel market in 2019 will be oversupplied on the whole

For reasons of length, only the calculation results of steel supply and demand in 2019 are described here, and the calculation method and process will be described in a later series of reports.


On the supply side, crude steel output is expected to reach 926 million tons in 2018, up 9.7 percent year-on-year.Crude steel output is expected to reach 938 million tons in 2019, up 1.3 percent year-on-year.The main reason is that tonnage steel profits are expected to fall sharply, resulting in steel mills to curb the release of capacity.


In terms of demand of the construction industry, it is estimated that in 2018, the real estate industry will use 21.576 million tons of steel (up 15.58 million tons), the infrastructure industry will use 14.409 million tons of steel (down 6.29 million tons), and the construction industry will use 35.985 million tons of steel (up 9.29 million tons), an increase of 2.7% year on year.It is estimated that in 2019, 21.146 million tons of steel will be used in the real estate industry (down 4.3 million tons), 15.157 million tons of steel will be used in the infrastructure industry (up 7.48 million tons), and a total of 36.03 million tons of steel will be used in the construction industry (up 3.17 million tons), an increase of 0.9% year-on-year.On the demand side of the non-construction industry, the steel used in 2018 is expected to be 408.71 million tons (minus 8.94 million tons), down 2.1% from the previous year.Steel use in 2019 is expected to be 40,999 tonnes (up 1.28 million tonnes), up 0.3 per cent year-on-year.


2, domestic seamless carbon steel pipe exports and tons of steel profit has a great correlation


China is a big country of steel production and consumption, and also the country with the largest steel export volume.Historical data shows that the export volume of domestic seamless carbon steel pipe is mainly determined by the domestic output and the level of internal and external price difference, the most core of which is the internal and external price difference, that is, whether there is profit in export.And export to have profits, it means that the domestic steel price is cheaper than foreign, this situation will appear only one possibility, that is, the domestic seamless carbon steel pipe market there is a greater supply and demand pressure.


From 2009 to 2014, the net export volume of domestic seamless carbon steel pipe continued to increase, at this time, the annual tonnage steel profit is basically maintained within 500 yuan, which is a reasonable profit range.Therefore, the proportion of net exports of seamless carbon steel tubes in this stage continues to increase to 9.5%.In 2015-2016, domestic seamless carbon steel pipe tonnage profit shrank to less than 100 yuan, at this time seamless carbon steel pipe net exports also increased to nearly 100 million tons level.In 2017-2018, due to the factors of domestic supply-side reform, the profit per ton of seamless carbon steel tube increased to the high level above 800 yuan. At this time, the price difference between inside and outside obviously shrinks, and even the domestic price is upside-down, the export volume of seamless carbon steel tube also drops sharply.Thus it can be seen that the amount of exports and tonnage of steel profits have a great relationship.


It can be seen from the above analysis that the expansion of internal and external price difference is an important factor leading to the decline of exports from 2016 to 2018, but its core is the change of domestic supply and demand.When the demand for seamless carbon steel tubes keeps increasing normally, the domestic supply-side reform and the implementation of environmental protection policy lead to the inhibition of domestic output release.Domestic steel prices rose sharply, the price difference between domestic and foreign prices remained relatively high, domestic price competitiveness declined, leading to a significant decline in exports.Figure 5 shows that the composite steel price index of China started from higher than the world steel price index for a long time at the beginning of 2004 to gradually lower than the world steel price index at the beginning of 2012, and gradually became stable at the beginning of 2012, which is in sharp contrast with that before 2011.At the same time, although the trend of the international steel price index and China's steel price index is generally similar, but there is a certain lag, so the domestic price trend is ahead of the trend of internal and external price difference.


3. Dynamic deduction: export may be the only factor to balance the supply and demand of seamless carbon steel tubes in 2019


According to the entropy model, the domestic crude steel output in 2019 is 938 million tons and the demand is 844 million tons. If the export factor is not taken into account, the supply will increase by 94 million tons compared with the demand.It is estimated that the net export volume in 2018 will be 57.6 million tons, and if the net export volume in 2019 maintains the level in 2018, there will be a surplus of 36.4 million tons of seamless carbon steel tubes.Therefore, it can be predicted that the net export volume of seamless carbon steel tubes in 2019 will definitely be higher than that in 2018, so as to maintain the rebalancing of iron and steel supply and demand.We conservatively estimate that the net export of seamless carbon steel tubes will increase by 13.7 million tons in 2019. If the supply-demand relationship continues to deteriorate, the export volume may increase by more than 20 million tons.


Current data already reflected the increase of steel mill export intention partly.Current inventory data shows that in the macro pessimistic and spot continued downward trend, traders maintain low inventory, steel inventory pressure gradually accumulated.Last week's total social stock fell by 210,000 tonnes, while factory stocks rose by 240,000 tonnes.And, the recent hot volume initiative to destock signs obvious.Steel mills in order to reduce their own pressure, only to reduce the price, steel mills profit from the high level of the early decline, electric furnace plant has begun to lose money.In this case, the price difference between inside and outside narrowed. Mysteel's "international hot rolled coil price: FOB for China" last week was $495 / ton, down $70 / ton from the previous month, while the average international price dropped $32.5 / ton from the previous month.It is understood that the steel mill is increasing the volume of exports on, foreign trade orders significantly improved, even back-to-back opportunities have begun to increase.


According to the above analysis, we know that the export volume is determined by the output and the price difference, and the price difference depends on the profit of tonnage steel, and the profit of tonnage steel is determined by the relationship between domestic supply and demand.In terms of output, although the utilization coefficient will drop next year, the capacity utilization rate will remain high, and the steel output still has a small increase compared with this year.In terms of internal and external price difference, with the release of a large number of steel mills, the relationship between supply and demand deteriorates, steel mills' profit drops sharply, and the internal and external price difference decreases accordingly, and the recovery of export intention leads to the increase of export volume.At the same time, it should be noted that the brewing trade war between China and the United States has caused some domestic processing enterprises to shift their production lines to southeast Asia.The transfer of this part of the capacity will also increase domestic exports of related products, such as wire rod.In general, the export volume of seamless carbon steel pipe is expected to increase substantially in 2019, which will be the only way to balance the supply and demand of iron and steel, and the corresponding export enterprises will have a great increase in opportunities.