Looking back on the first half of 2022, the pig iron market as a whole showed a trend of rising first and then falling. At the beginning of the year, as raw material prices rose, bulk commodity prices continued to strengthen, and the pig iron market also went up simultaneously. However, with repeated epidemics in various places, transportation has been hindered and freight rates have risen, and downstream enterprises have not started high production, pig iron demand continues to be sluggish, the logic of strong expectations and weak reality has been broken, and pig iron prices have followed the trend. Then for how the pig iron market will perform in the second half of 2022, suntrmark will conduct a brief analysis from the following aspects.
1. Review of pig iron market price trend in the first half of 2022
The comprehensive price index of foundry pig iron shows that the price of pig iron rose first and then fell in the first half of the year, and has returned to the level at the beginning of the year. In January, the ore and scrap steel markets were relatively strong. In addition, the three rounds of coke hikes came to fruition. The cost of pig iron increased significantly and profits were compressed. Superimposed on the low inventory of pig iron companies in various places, pig iron quotations continued to increase. During the Spring Festival holiday, the market remained stable. In February, the market opened after the festival with a strong performance in the black series. With the production restriction of the Winter Olympics, the price of pig iron went up. However, with the relaxation of the production restriction policy, pig iron enterprises in various places resumed production one after another. The factory is still in the state of shutdown and holiday, and the manufacturers in production mainly purchase on demand, and the price of pig iron has fallen from a high level. From March to April, raw materials such as iron ore and coke fluctuated upward again. In addition, the price of scrap steel tax reform continued to rise. From May to June, under the background of strong expectations and weak reality, the prices of black futures, steel products, and scrap steel dropped sharply, and the market sentiment was depressed. At the same time, raw materials such as coke and ore fluctuated downward, and the cost support of pig iron weakened. Enterprise shipments are blocked, and the room for bargaining to promote shipments continues to expand.
2. Review of pig iron fundamentals in the first half of 2022
1. Supply side
In the first half of 2022, the operating rate of pig iron enterprises will fluctuate due to the impact of the epidemic, production restriction policies and profit conditions. In the first ten days of January, most pig iron enterprises maintained a normal production rhythm, but in the second half of the year, due to the impact of the Winter Olympics, Shandong, Shanxi, Henan and other places newly stopped production for maintenance, and the operating rate of pig iron enterprises dropped significantly, and the supply of pig iron continued to decrease. On the 17th, the blast furnace capacity utilization rate of 43 sample pig iron enterprises surveyed by Mysteel dropped to 57.06%, a decrease of 10.9% from the beginning of the year, and the weekly output of pig iron was 254,700 tons, a decrease of 48,600 tons from the beginning of the year; until late February, with the relaxation of the production restriction policy , pig iron enterprises around the country have resumed production one after another, coupled with the rapid release of pig iron demand, pig iron enterprises have a high enthusiasm for starting work. At the end of March, the blast furnace capacity utilization rate of pig iron enterprises reached a yearly high of 81.45%, and the weekly output of pig iron was 363,500 tons. After entering the end of March and the beginning of April, the epidemic situation broke out in many places in various places, and the logistics and transportation were blocked. The downstream foundries were affected by this and the operation was not high. With the sharp weakening of steel prices and the chaotic downward trend of pig iron prices, the shutdown of blast furnaces in pig iron companies has continued to increase. As of June 30, the capacity utilization rate of blast furnaces in pig iron companies has dropped to 61.47%, which is 19.98% lower than the high point of the year. The weekly output of pig iron is 274,300 tons, a decrease of 89,200 tons from the high point of the year. And some pig iron enterprises still have plans to stop production in July, and the supply of pig iron will be further reduced.
2. Demand side
At the beginning of the year, as the price of pig iron gradually increased, the price/performance ratio decreased. In addition, as the Spring Festival holiday approached, foundries stopped production and the demand for pig iron gradually weakened. Scrap steel is scarce and the price is high, and the enthusiasm of steel mills to purchase pig iron for steelmaking is acceptable. However, the northern foundries postponed the resumption of production, and the demand for ductile iron was not good. With the outbreak of the epidemic in various places, the number of foundries that have suspended operations and production in various places has increased, and the demand for pig iron has continued to shrink. After May, the state put forward a policy of seeking progress while maintaining stability, encouraging all walks of life to resume work and production, but the overall start of work was lower than expected. Most foundries in various places are still in a state of suspension of production. Need-based.
Taking the automobile industry as an example, from January to March 2022, China’s automobile production and sales will rise steadily, with a total of 6.484 million and 6.509 million vehicles respectively, a cumulative increase of 2% and 0.2% respectively. However, since April, the domestic epidemic has generally shown a trend of frequent outbreaks, the situation has become more severe and complex, the difficulties of market players have increased significantly, the downward pressure on the economy has further increased, and the task of stabilizing the growth of the industry is very arduous. The data shows that automobile production and sales in April showed a cliff-like decline, completing 1.205 million and 1.181 million respectively, a month-on-month decrease of 46.2% and 47.1%, and a year-on-year decrease of 46.1% and 47.6%. From May to June, with the effective control of the epidemic in my country, the level of economic prosperity has improved compared with April. At the same time, the country has successively introduced a series of policies and measures to promote consumption and stabilize growth. The chain gradually unblocked. In May, automobile production and sales showed obvious recovery growth. The production and sales of automobiles in the month were 1.926 million and 1.862 million, respectively, an increase of 59.7% and 57.6% month-on-month, and a year-on-year decrease of 5.7% and 12.6%, respectively. The decline rate narrowed by 40.4 and 35 percentage points from the previous month. Since the beginning of this year, the Omicron virus has broken out in many places, and has spread in Ningbo, Hong Kong, Shenzhen, Suzhou, Changchun, Shanghai, Beijing and other places. It has affected more than 30 provinces and cities in China and more than 100 cities have been forced to It is in a closed state or some areas are closed, resulting in huge economic losses and the suspension of production of many automobile industry chain enterprises. Shanghai, Jilin, and Guangdong are the core areas where my country’s auto industry gathers. In 2021, the output of passenger vehicles in the three regions will account for 28% of the national output. Therefore, the impact of the epidemic this year, whether it is the overall regional economy or the automobile industry, is facing a heavy impact. Automobile castings account for about 30% of the foundry production capacity. Affected by this, it is difficult to effectively release the demand for foundry pig iron in the first half of the year.
- Inventory
In the first half of 2022, the inventory of pig iron companies will maintain an upward trend. From January to May, pig iron companies will be more active in starting operations, and the supply of pig iron will remain high. However, downstream foundries are affected by high iron prices, frequent outbreaks of epidemics, environmental protection policies, and fewer orders. Insufficient follow-up has led to a continuous increase in the inventory of pig iron companies. According to Mysteel research, as of May 17, the inventory of 43 sample pig iron companies reached 703,500 tons, a new high for the year, an increase of 664,500 tons from 39,000 tons at the beginning of the year. Afterwards, due to the impact of profit inversion and lack of demand support, the pig iron enterprises’ enthusiasm for starting production dropped significantly.
4. Raw material market
From the iron ore composite index, it can be seen that the price of iron ore remained at a high level from January to mid-June, an increase of 124.97 yuan/ton compared with the beginning of the year. The downward channel was not opened until the middle and late June, and it basically returned to the level at the beginning of the year. Looking at the coke price index, the overall performance of coke from January to April was strong, and the cumulative increase after March reached 1,200 yuan/ton. However, as the price continued to rise, the downstream’s ability to accept high-priced coke weakened. Negative demand feedback affects the raw material and fuel market, and prices weaken. After entering June, steel mills suffered large losses and actively controlled the arrival situation, and coke continued to fluctuate. In the first half of the year, raw materials such as iron ore and coke remained at a high level, and the cost of pig iron remained high. With the fluctuation of pig iron prices, most pig iron companies were at a low profit or profit inversion level.
3. Market outlook for the second half of 2022
1. Supply side
After entering June, due to the sluggish downstream demand in various places, the shipment of pig iron enterprises was blocked, and the pig iron inventory in the factory continued to accumulate. In addition, the iron price fell sharply, the losses of pig iron enterprises increased, and the production enthusiasm continued to weaken. According to the statistics of Mysteel pig iron group, since June From January to now, 13 new blast furnaces have been shut down in pig iron enterprises, and 7 blast furnaces that have been shut down in the early stage have postponed the resumption of production. As of July 7, the operating rate of blast furnaces in 43 sample pig iron companies was 56.25%, and the capacity utilization rate was 59.09%, respectively, which decreased week-on-week 4.69% and 2.38%, down 20.31% and 15.02% month-on-month respectively. The weekly output was 263,700 tons, a decrease of 10,600 tons week-on-week, and a month-on-month decrease of 67,000 tons. At present, the supply of pig iron fluctuates mostly due to the influence of profit and downstream demand. At present, with the adjustment of the weak coke and ore markets, the profit of pig iron has been restored. If the downstream demand can be released, the production enthusiasm of pig iron enterprises will increase accordingly. , The supply of pig iron will also gradually increase.
2. Demand side
Judging from the official data released in the first half of the year, in June 2022, the manufacturing purchasing managers index (PMI) was 50.2%, an increase of 0.6 percentage points from the previous month, returning to above the critical point, and the manufacturing industry is recovering and expanding.
Looking at the automobile-related data, affected by various factors, the production and sales of automobiles have declined significantly year-on-year since March. In May, some automobile manufacturers affected by the epidemic resumed work and production, and their output recovered to a certain extent. At the same time, we learned from the terminal market that starting from the middle and late May, the market has shown signs of recovery, and car sales have picked up, and the monthly sales have turned from negative to positive month-on-month. According to data released by the China Association of Automobile Manufacturers, the production and sales of automobiles in May were 1.926 million and 1.862 million, respectively, a month-on-month increase of 59.7% and 57.6%, and a year-on-year decrease of 5.7% and 12.6%. From January to May, the production and sales of automobiles were 9.618 million and 9.555 million respectively, a year-on-year decrease of 9.6% and 12.2% respectively. According to the China Association of Automobile Manufacturers based on data reported by key enterprises, in June 2022, the sales volume of the automobile industry is expected to complete 2.447 million units, a month-on-month increase of 34.45%, and a year-on-year increase of 20.9%; from January to June 2022, sales are expected to complete 1200.2 million vehicles, a year-on-year decrease of 7.1%. This fully shows that under the background of “epidemic prevention” and “development” in my country, enterprises are fully accelerating the resumption of work and production, and the automobile industry chain and supply chain are gradually smoothing out. Therefore, the demand for pig iron in the foundry industry may usher in stages in the second half of the year. freed.
3. Cost
Coke market: The current coke inventory is at a historically low level. At the same time, the supply of upstream coking coal is relatively tight, and the price of coking coal continues to remain high. The cost of coke is high, forming a strong bottom support for coke prices. At present, the core contradiction of coke is still the negative feedback from the finished product market. The profit of steel mills is low, and it is difficult for coke prices to rise sharply, and the market is mainly volatile.
Iron ore market: On the supply side, under the background of the four major mines guaranteeing annual production plans, it is estimated that the global iron ore shipments from July to December will decrease by about 13 million tons year-on-year, and my country’s iron ore imports will decrease by 8 million year-on-year The production of domestic mines is expected to increase by about 13 million tons. Although non-mainstream mines have decreased, overall, the subsequent supply of iron ore may continue to grow. On the demand side, the production of pig iron may continue the trend of last year’s reduction. It is expected that the production of pig iron in the second half of the year will drop by about 2% year-on-year. Downward pressure, the cost of molten iron will move down.
4. Macro aspect
After the relaxation of prevention and control in the second half of the year, the economy is expected to pick up. In the first half of 2022, under the impact of unexpected factors such as the conflict between Russia and Ukraine and its sanctions, a new round of domestic epidemics and its control policies, the “triple pressure” facing the Chinese economy continued to increase, both supply and demand declined, and market expectations deteriorated. Looking forward to the second half of the year, the external environment will become more severe and complex, and domestic demand will replace external demand as the key to stabilizing the macroeconomic market. Because the drag on the economy in the second quarter is more obvious, it is expected that the annual GDP growth rate of 5.5% will still be under great pressure, but The single-quarter GDP growth rate in the third and fourth quarters is expected to reach or even exceed the level of 5.5%.
5. Forecast of pig iron price trend in the second half of 2022
Looking forward to the second half of 2022, it is currently the traditional off-season of the pig iron market, coupled with the economic downturn in the first half of the year restricting the release of downstream pig iron demand, iron mills continue to lose money, and the number of blast furnaces that are shut down is gradually increasing. The pig iron market will still be weak in the short term. However, with the support of the national macro policy, the manufacturing industry will resume expansion, and the demand for pig iron is expected to be released in a concentrated manner. With the advent of winter, the demand for pig iron will be restricted in consideration of factors such as the limited production in the heating season and the reduction in crude steel output. However, the Spring Festival holiday in 2023 will be earlier, and downstream enterprises may have centralized replenishment at the end of the year, and the pig iron market as a whole will fluctuate Mainly run. On the whole, the pig iron market price in the second half of the year may show a trend of shock adjustment after bottoming out.
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