There is still room for the scrap market to rise in July

At the end of June, the scrap steel market ushered in another upsurge. Affected by Tangshan's announcement of production restriction policy, the bullish atmosphere of scrap steel market has increased significantly. In addition, the price of billets and finished products has been rising, and steel mills around the country have raised the purchase price of scrap steel, which has driven the market up. Can the scrap rally continue at the beginning of July?

Firstly, recently the Tangshan Municipal Government issued the notice of stop and limit production of iron and steel enterprises in the whole city. Before August 1, the performance evaluation was as follows: Shougang moved to Beijing and Tangshan, Wenfeng, Tangshan medium and heavy plate, Delong, Longitudinal and horizontal steel, sintering machine (pellet), blast furnace, converter and lime kiln; other iron and steel enterprises in the province limited production by 20%; Sintering machine (pellet) and high production. The production limit ratio of furnace, converter and lime kiln should not be less than 50%, and the production of blast furnace pickling stops. The actual impact of this production restriction on pig iron production is between 265-568 million tons, which will lead to tightening of steel supply, boost steel prices, and thus benefit scrap steel. However, it should be noted that this time the production limit is relatively large, some steel mills or reduce the consumption of raw materials such as scrap steel. Later scrap or due to weak demand, resulting in limited upward power. Secondly, from two aspects of steel supply and demand. Since this year, domestic steel production has remained high. According to the statistics of China Steel Association, the average daily output of crude steel in key steel enterprises in early June 2019 was 20605,000 tons, an increase of 56,000 tons, or 2.79% over the previous ten-year period. Although this environmental production restriction will restrain the production of steel enterprises and improve the pressure of supply side, July is still in the off-season of traditional steel market. Under the influence of high temperature and rainy weather, the off-season effect of steel market will be prominent, and the demand of steel terminal will be difficult to improve significantly, which will restrict the rising space of steel and scrap prices.

Finally, influenced by foreign mining news, iron ore prices rose significantly in June. According to statistics from Jin Lianchuang, 62% of the import mine index rose by $14.95 per ton from the beginning of the month. The cost of promoting the rise of iron is about 70-80 yuan per ton. With the rising cost of hot metal, the enthusiasm of some steel mills to use scrap steel has increased. This will boost the scrap price to a certain extent. However, due to the limited proportion of converter scrap and the rising cost of steelmaking, the space for raising the price of steel plant is constantly compressed, resulting in the reduction of the space for scrap price increase in the later period. Overall, it is expected that the domestic scrap market will still have some upward momentum in July, but there is limited room for price increase.