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Mysteel Steel Daily Issue 2586 Thursday 6th July 2017 Long Steel • Flat Steel • Special Steel • Semi Finished Steel • Latest News • Analysis • Data Contents Mysteel Shanghai Rebar (HRB400 20mm) and HRC (Q235B 4.75mm) Industry & Market News 2 4500 Chinese Long Steel Prices 4 Rebar HRC Chinese Flat Steel Prices 5 4000 Key Indicators & Analysis 6 3500 Maintenance & Restrictions 7 Capacity & Production 8 3000 Tangshan Billet Indicators 11 2500 Rebar Inventories 12 Wire Rod Inventories 13 2000 HRC Inventories 14 1500 CRC Inventories 15 Plate Inventories 16 1000 About Mysteel 17 500 Copyright Agreement 18 0 Chinese long products prices firm in response to tighter market fundamentals Mysteel’s average rebar price for HRB400 20mm grade across 25 major cit- ies inched RMB7/t higher day-on-day to RMB3,847/t, EXW (incl. tax), as mar- Editorial ket fundamentals remained tight and sentiment on the outlook for near-term steel demand was still relatively optimistic. That said, relatively higher-priced Vice President: Amy Ren steel products have resulted in lower transaction volumes while demand +86-21-2609-3646 has also softened due to heavy rains in the south and high temperatures in [email protected] the north of China. In fact, we note that the volume of transactions for con- struction steel products has fallen markedly to 167,341 tonnes yesterday, Head of Market Intelligence: compared with daily average volumes achieved last week (190,878 tonnes). Atilla Widnell +65-6653-8226 Mysteel calculates that rebar profit margins for some Chinese steel produc- [email protected] ers have climbed above RMB1,000/t, as demand remains surprisingly strong while nationwide inventories have fallen to historical lows. As a result, many Editors: domestic long products producers have been incentivized to raise capacity Olivia Zhang [email protected] utilization rates to benefit from such “juicy” profit margins. While open in- terest declined in the futures market on Tuesday, Mysteel understands that Rebecca Zhu investors holding most of the longs actually increased their positions. There- [email protected] fore, we believe there is more scope for more increases in rebar futures contracts; narrowing the disparity between futures and physical spot prices. Industry & Market News 2 China implements nationwide safety inspec- Mining Group, Liuqiaoyi Mine of Wanbei Coal & tions of metals and mining industry from Power Group and Jinshi Mining of Huaibei Xinguang July to October 2017. Chinese officials will carry Group; with the planned reduction in annual capaci- out a nationwide safety checks on the domestic met- ty estimated to be 4Mt, 1.2Mt, 1.4Mt and 0.45Mt this als and mining industries from July to October 2017, year respectively. At the same time, Anhui province to test whether production, equipment and manage- will accelerate the release of advanced capacity of ment meet legal and safety standards. Furthermore, collieries and those under construction which have small mines and steel producers with poor safety re- been examined and conform to the local govern- cords will be closed. For key industries which have ment’s rules, regulations and safety standards. recorded a high number of work place casualties, the Chinese government will disperse safety inspec- China cuts 42Mt of crude steel capacity in tion teams to carry out level-to-level management. 2017, but excessive supply persists. China re- At the same time, key personnel and safety officials duced crude steel capacity by around 42Mt through in the metals and mining industry will be required the first five months of 2017, as many provinces to pass examinations on knowledge of production tackled the production of substandard steel on safety and management. Mysteel understands the government orders. Moreover, this means that the policies will be implemented in phases with “central- country has now completed 84.8% of the annual ized renovation” in July, deep investigation in August capacity reduction target for 2017. In the process, and September, and field supervision in September Chinese officials have checked over 500 manufac- and October. turing enterprises that produce low-quality steel; with total capacity of 1.19 billion tonnes, according China closes around 120Mt of substandard to the China Iron and Steel Association. While there finished steel capacity by end of June 2017. have been great achievements in reducing capac- China banned around 600 enterprises from produc- ity in the coal and steel industries, a situation of ing substandard steel products by the end of June, structural oversupply is still prominent across many with a total capacity of 120Mt per annum, according provinces. Wang Xianzheng, the president of China to an announcement from the National Development National Coal Association, recently said that there and Reform Commission (NDRC). At present, all has been no fundamental change to excessive coal enterprises of substandard steel products were shut capacity in the country, with supply still very much down. Liu Zhenjiang, the China Iron and Steel In- exceeding demand. In addition, there are still some dustry Association (CISA) party secretary, said that problems to be resolved, such as illegal production just like the elimination of substandard steel prod- increases and employee resettlement. The Chinese ucts, the prevention of substandard steel products Academy of Social Sciences Institute of Industrial was also quite important. After banning the produc- Economics proposed that the country should take tion of substandard steel products, Mysteel under- full advantage of market, law and financial means to stands that steel mills with intermediate frequency/ solve the problem of excessive steel capacity and induction furnaces have almost been completely improve the exit mechanism of excessive capacity. shut down. This may lead the way for more electric Furthermore, the institute stated that preferential arc furnace steel production in the future given the tax policies should be provided to underdeveloped strengths in short tap-to-tap times, lower capital areas where enterprises have huge overcapacity. expenditure, lower emissions, and relatively energy The focus should be on setting and retraining the efficient. unemployed and improving social security. Anhui province plans to shut down four coal mines and eliminate 7.05Mt capacity in 2017. In order to resolve excess capacity in the Chinese coal industry, provincial and local coal enterprises in Anhui province have announced plans to permanently close four mines in 2017; reducing annual capacity by 7.05Mt. The four enterprises/ mines included are Xinzhuangzi Mine of Huainan Mining Group, Daihe Coal Mine of Huaibei Coal Thursday 6th July 2017 Copyright © Mysteel.net, 2017. All Rights Reserved www.mysteel.net Economic Highlights 3 Global Economics: Central Banks are be- numbers come at a time when the Chinese govern- coming more hawkish. The Fed has been for ment is trying to keep a strong economic growth some time the only hawk amongst Central Bankers. while embarking into a series of measures aiming at Markets have anticipated another 25bp interest rate de-leveraging the economy. It therefore gives more hike in 2017 with the possibility of two more in- room for the PBOC to push ahead with reforms. creases in 2018. As the world economy is continuing However, we believe that as the 19th National Con- its synchronised upswing, the Fed hawkish rhetoric gress of the Communist Party of China nears, the has been joined by the European Central Bank, the monetary authorities will become more prudent, to Bank of Canada and after a surprising reversal, by ensure that there will be sufficient financial stability Bank of England, triggering the question whether we at that time. could see a synchronised tightening. Central Bank- ers are certainly making their rhetoric louder but we The Chinese Yuan has also posted its strongest believe that they will be very prudent in walking the quarterly gain in nine years, rising 1.8% vs the US walk with more tolerance for inflation -which has yet dollar over the past three months. All this points to materialize- and not put the economy at risk. towards a stronger than expected economy in the In the US, Fed officials have been discussing over second part of the year with at worst a mild slow- how the central bank should react to the US econ- down driven by moderating property prices. It is omy’s seemingly conflicting signals from unemploy- difficult to not mention the 20th anniversary of Hong ment and inflation. Kong handover to China, which took place on July 1st 1997. In its speech Chinese President Xi Jinping Joblessness dropped to 4.3% in May, a 16-year low. said that challenges to China’s rule would not be Ms Yellen and some of her colleagues have called tolerated and that the city’s leaders must find new for continued, if slow, tightening because they ex- ways to profit from Chinese economic clout, adding pect labour market gains will eventually trigger high- that they must build political consensus, devise new er wages and overall prices. Last week however, Ms economic drivers and address soaring home prices. Yellen nodded to concerns among some economists Hong Kong has Asia’s largest wealth disparity with that inflation expectations might be declining. ‘We housing prices having increased by nearly 400% don’t get a consistent story,’ she said. In a com- over the past thirteen years while the median wages prehensive speech hold in Sintra, Portugal, ECB’s trailed with a 75% rise. In terms of economic weight, President Draghi said that ‘deflationary forces’ have Hong Kong accounts now for only 3% of total been replaced by ‘reflationary forces’ summarizing China’s economy vs nearly 20% two decades ago, the optimism in the euro-area. Mr Draghi appeared reducing China’s tolerance for any political dissent. also convinced that the Phillips Curve will steepen During Mr Xi’s visit, the Hong Kong stock exchange at some stage but called for patience.

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