Shanghai Iron and Steel recently fluctuated sharply and was sharply rebounded after the impact of the Japanese earthquake. In recent days, it fell sharply again, and the decline in steel prices was accompanied by a continuous increase in open interest. After Japan's post-disaster reconstruction and the beginning of the domestic steel consumption peak season, the steel prices have returned to their weak fundamentals. High inventory, high production and other factors continue to suppress steel prices. The author believes that the downward trend of Shanghai Iron and Steel is still continuing. Should not be too optimistic.

Post-Disaster Reconstruction The recent development of the limited earthquake in Japan's East Coast area includes the Keihin Industrial Belt, one of the four major industrial belts in Japan. This area has concentrated on a large number of Japanese pillar industries such as steel, automobiles, petrochemical, and nuclear power industries. . After the earthquake, a large number of factories in the region were forced to stop production, including a large number of steel production enterprises and steel consumption enterprises. Japan’s largest steel company, Nippon Steel Corporation, has stopped production at its steel plant in Kamai, Iwate, and is currently inspecting the damage to the boiler equipment. Sumitomo Metal Industry's blast furnace at Kashima Iron and Steel Plant in Ibaraki Prefecture was damaged, and the blast furnace has stopped production after the earthquake. There was also a fire at Japan's JFE steel plant in Chiba, and these companies could not resume production in the short term. In 2009, orders for steel products in the affected areas accounted for about 30% of the total orders for steel products in Japan. As a major exporter of steel products, a 30% production capacity impact will have a certain impact on the balance of global steel trade, but considering Japan’s own country Demand has also been affected to a certain extent, so it has little impact on the total supply and demand of steel products in the world.

From a longer period of time, with the gradual development of post-disaster reconstruction, the demand for domestic building materials in Japan will increase sharply. According to historical data, Japan’s imports of building materials from China account for approximately 40% to 50% of its total imports. Looking back at the Great Hanshin Earthquake of January 1995, Japan’s domestic steel market prices have risen sharply. At the same time, they have also boosted the demand for steel in other countries. The impact of the earthquake far exceeds the Great Hanshin Earthquake and is expected to lead to the steel market in the later period. Rising prices have made more bullish expectations for steel prices, but considering the timetable for post-disaster reconstruction is still uncertain, rising expectations will have little effect on mitigating the current domestic oversupply of steel.

The domestic overcapacity is serious and raw material prices have fallen. The large earthquake in Japan caused the global steelmaking raw materials to drop sharply. After the news of the earthquake, the global steelmaking raw material prices fell. Japanese steel mills are the major customers of the three major mines in Asia except China. In 2010, Japan’s total iron ore imports reached 134 million tons. The large-scale suspension of production of Japanese steel mills will inevitably lead to a decrease in the demand for iron ore, which will further reduce the price of iron ore. After the news of the earthquake on March 11 was gradually digested by the market, the price of iron ore swap contracts fell 4.15% in April at the London Clearing House, the biggest drop since 2011.

At present, the biggest obstacle to the rise in steel prices is undoubtedly domestic crude steel production exceeding demand. Recently, China's steel output has continued to rise and reached a new high in the next ten years. In the second half of the year, the national crude steel output was 1.912 million tons, a 5.5% increase from the previous period. Although the inventory of domestic construction steel stocks began to decline last week, but in the case of tight credit and weak demand from the real estate industry, the peak season of building materials consumption has not actually boosted steel prices. Instead, raw material prices have continued to decline. The panic mood of the spot market.

At present, steel mills using contract mines still have higher steelmaking profits. After the rebound in steel prices, the large number of steel mills and the participation of traders' hedging have also contributed to the sharp fall in Shanghai Steel. Looking back at the characteristics of steel prices in history, when the supply exceeds demand, the large-scale production reduction of steel plants is the life-saving straw for steel prices, in other words, if the steel mills still maintain such a high operating rate, It is very difficult for steel prices to bottom out.