Iron ore prices hit a five-year high and steel enterprises were under pressure

In addition to iron ore, due to environmental protection supervision and Shanxi coking industry rectification, domestic coking coal and coke prices also showed a strong upward trend.

In the afternoon of today, the main contracts of iron ore futures in Dalian rose and stopped, reaching a new high since May 2014. At the same time, spot iron ore prices have also been rising steadily in the near future, also touching high levels since 2014.

As the main raw material of iron and steel production, the spot price of iron ore futures has risen at the same time, which is not good news for steel listed companies. In the first quarter of this year, the overall profit of steel listed companies has shrunk sharply, and only 8 of the 33 profit-making steel enterprises have achieved year-on-year growth. 

In fact, the import iron ore market has risen significantly last week. According to the monitoring data of Langer Steel Cloud Platform, 58% of Australian flour was 88 US dollars/ton as of May 24, up 6 US dollars/ton from last week; 61.5% of Australian flour was 92 US dollars/ton, up 6 US dollars/ton from last week; 62% of Australian flour was 119 US dollars/ton, up 4 US dollars/ton from last week. Iron ore prices on the Singapore Stock Exchange have soared by 37% since a deadly dam break at a Vale mine in January. Analysts at Goldman Sachs Group last week continued to raise their price expectations for iron ore, saying China's unexpected increase in iron ore use is exacerbating supply shortages. According to the report, Goldman Sachs expects iron ore prices to remain at $100 a tonne in May and June, then gradually fall to $90 by the end of the year.

"There are two main characteristics of iron ore fundamentals at present. One is that there is no effective increment in the world in 2019 to compensate for the reduction of iron ore supply caused by the mining disaster in Valley; the other is that the domestic pig iron production is high at present, and the influence of environmental protection restriction on pig iron production is weakening, and the domestic pig iron production will be innovative high in 2019." Zhang Yan, an analyst at Everbright Futures Research Institute, said that in the case of reduced iron ore supply and higher pig iron production, the iron ore fundamentals in 2019 were relatively strong. Later, the contradiction between supply and demand of iron ore will be eased with the increase of shipments of the four major mines.

On January 25 this year, the tailings dam of Feijao mine in Valley collapsed, involving a capacity of 7.8 million tons. Subsequently, Vale submitted an application to the Brazilian Ministry of Energy and Environment to close 10 upstream dams (idle), which would affect about 40 million tons of iron ore production, including 11 million tons of pellets. Under the influence of Australian Hurricane Veronica, the shipments of three major Australian mines also decreased by about 2000-25 million tons compared with the expected target, thus increasing the supply pressure of iron ore worldwide. The increment of iron ore in other areas in 2019 is also limited, with China's iron ore output increasing by 12 million tons and India's iron ore output increasing by 10 million tons. On the demand side, there is no decrease in heat. Statistics show that in April 2019, China's pig iron output reached 69,834,000 tons, an increase of 5.6% annually over the previous year, a record high; the cumulative output reached 26,264,400 tons, an increase of 9.6% over the same period of last year.

"Although Tangshan and other regions implement the policy of environmental protection production restriction, the marginal effect of environmental protection production restriction on pig iron production is weakening. At the later stage, the production of pig iron will increase by 38 million tons in the whole year of 2019 according to this level and considering the effect of heating season production restriction." Zhang Yan predicts.

Steel enterprises are not optimistic in the second quarter

According to reporters, in 2018, the profit of the steel industry reached a 10-year high driven by the alleviation of supply-demand contradiction and price rebound, but as the task of capacity removal is approaching completion, the marginal pull effect of supply-side on prices is gradually reduced, and the industry has not been optimistic about the coming year of 2019.

According to the results of 35 listed steel enterprises monitored and counted by Langer Iron and Steel Research Center in the first quarter of 2019, the total profit of steel enterprises exceeded 12.6 billion yuan, of which 33 enterprises remained profitable, but only 8 companies kept positive growth. The rapid rise in iron ore prices since this year is one of the main reasons for the obvious decline in the first quarter of this year. According to the monitoring data of Langer Iron and Steel Yunchang Platform, the average price of steel in the first quarter of this year was 4107 CNY/ton, which was 5.2% lower than that in the first quarter of last year. In the same period, the price of raw materials and fuels such as iron ore rose sharply. The average price of imported iron ore was 79.2 dollars/ton, up 10.0% compared with the same period last year.

According to the reporter's understanding, at present, the profit of steel mills producing threaded steel is still about 500 CNY/ton, far below the average level in 2018. Although the steel price has rebounded in the second quarter, the rising speed is slow, but the price of raw materials is still rising rapidly, which means that the profit margin of steel enterprises in the second quarter is still likely to be further compressed. In addition to iron ore, domestic coking coal and coke prices also showed strong upward trend under the influence of environmental protection supervision and Shanxi Coking Industry rectification. At the end of May, the coke market rose and fell in the third round, and the double-coke futures also reached a new high in the year. However, the latest analysis by the National Development and Reform Commission Price Monitoring Center predicts that iron ore prices will begin to decline gradually in the third quarter. The analysis points out that in the short term, domestic iron ore demand is stable, Brazil, Australia and other iron ore supply growth is slow, iron ore prices will remain firm, but it is expected that iron ore supply will gradually return to normal level and prices will gradually fall from the third quarter.