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Ferroalloy: not bad in the off-season, demand should be the focus of attention

 Date:2019-07-11 9:14:55

1. Supply and demand structure assessment

From the perspective of supply and demand structure, both varieties of alloys have a situation of both supply and demand. In the first two quarters of the 19th quarter, the growth rate of demand increased rapidly. In the case of a relatively stable supply growth rate, the market has a relatively tight supply and demand structure. In terms of varieties, the spot of silicomanganese has remained in a tight balance in the second quarter, while ferrosilicon is in the stage of digesting inventory. Therefore, from the perspective of price performance, both have shown a certain increase. From the perspective of supply and demand assessment in the third quarter, alloy production in the third quarter of 19 years will probably still have incremental space, but the increase is limited. On the demand side, the overall demand in the third quarter still needs not be too worried, and the situation of “low season is not weak” has emerged. However, the demand disturbance factor still exists, and the demand variable should be paid attention to later.

2. Third quarter market variable factors

In the third quarter of 19th, the market focus should focus on the demand situation, and the alloy factory will not have much problem due to the profit-driven supply. On the demand side, we believe that policy-based disturbance factors still exist, and demand uncertainty increases under the influence of policies. In terms of steel mills, attention should be paid to the operating rate and profit status of steel mills. Whether there will be a decrease in production due to the compression of steel mill profits, resulting in a decline in demand for alloys.

3. Market outlook

Silicon-manganese: Maintain a relatively cautious attitude, and the market is probable with shocks. In the case of relatively good demand, the downside is relatively limited, but the disk valuation is relatively high, and the increase is small.

Ferrosilicon: At present, there is a premium structure on the disk. The emergence of risk-free arbitrage space has intensified the arbitrage activities of the company. The valuation of the disk is at a relatively high level and there is a motivation to repair the valuation.

1. Silicon and manganese supply and demand assessment

Supply: From the published production data, we can see that the national production of silicomanganese in the second quarter of 2019 was 2.78 million tons, which increased by 30.7% year-on-year and 6.1% quarter-on-quarter. From the cumulative production in the first quarter and the second quarter, the production of silicomanganese in the first half of the year was 5.399 million tons, an increase of 26.3% over the same period last year and an increase of 4.2% from the previous month. From the perspective of national production, the national total output of silicomanganese is more obvious. The reason is that on the one hand, the expansion of production capacity makes the increment of production base more obvious, and on the other hand, the furnace that was previously shut down under high profit. The type began to reproduce.

From the perspective of the main producing areas, the most obvious increase in the second quarter of 19 is the Guangxi region. In the second quarter of 1919, the output of Guangxi was about 400,000 tons, an increase of 112.5% ​​year-on-year and 32.3% quarter-on-quarter. The total output in the first two quarters was 700,000 tons, a cumulative increase of 48.3% year-on-year, but we also want to see Guangxi. The cumulative ratio of the first two quarters of the region has decreased. The reason is that the third quarter is the southern flood season, the electricity price is relatively cheap, and the cost of the alloy factory is shifted so that it is more obvious during this period. The reduction in the Ningxia region of the main producing area is more obvious. In the second quarter, the output of Ningxia was 518,500 tons, down 13.8% year-on-year and 0.6% month-on-month. In terms of output in the first two quarters, the total output was 1.04 million tons, a cumulative decrease of 9.7% year-on-year and a 9.3% decrease from the previous month. The decline in production in Ningxia was caused by the local government shutting down the submerged arc furnace below 25,000 KVA. Inner Mongolia, as the region with the largest production of silico-manganese, produced 2.29 million tons in the second quarter, up 41.3% year-on-year and 1.7% quarter-on-quarter. We can see that the growth rate of production in Inner Mongolia has declined. The reason is that the newly added capacity is gradually released, and the newly added capacity is relatively small.

For the third quarter production forecast, we believe that there is still room for growth in the third quarter of 19th. In terms of total output, we expect production in the third quarter to be around 2.9 million tons, with an average monthly output of 95-97 thousand tons. In terms of regions, the output of Inner Mongolia is 1.1 million tons, 600,000 tons in Ningxia and 400,000 tons in Guangxi.

The reasons are as follows:

First, the Guangxi region has gradually entered the flood season, and the cost advantage brought by the electricity price to the enterprise will keep the growth trend in the third quarter.

Second, there is still investment in new capacity, and new capacity is mainly concentrated in Ningxia and Inner Mongolia. Among them, the Ningxia area is a capacity replacement. The original ore furnace below 25000KVA will undergo a certain capacity replacement. After the capacity is replaced, the output still has room for growth. The Inner Mongolia region is mainly the planned new capacity, concentrated in some alloy factories in Wulanchabu and Chayouqianqi.

Third, the drive of profit. In the current fundamental situation, the spot market is still dominated by tightness. The gradual increase in spot prices has gradually restored the profit of the alloy factory. Under the impetus of high profits, the operating rate has remained at a relatively high level.

Demand: The demand for silico-manganese alloy is mainly steel mills, accounting for about 98%, and the rest is the consumption of carbon-manganese iron for export and production. Due to the relatively small consumption of exports and medium-carbon ferromanganese, the impact on the market is small. In terms of demand for steel mills, we saw crude steel production in the second quarter of around 263 million tons, an increase of 10.5% year-on-year and an increase of 16.4% quarter-on-quarter. The cumulative volume in the first two quarters was 489 million tons, a cumulative increase of 9.2% year-on-year and a 2.3% quarter-on-quarter increase. Because thread is the main silico-manganese consumable, its output in the second quarter was 199 million tons, an increase of 7% year-on-year and a 15% increase from the previous month. The increase in production growth also confirmed the argument that the thread production reached a new high. Thread production in the first two quarters was 373 million tons, a cumulative increase of 6.9% year-on-year and an increase of 1.4% quarter-on-quarter. According to our demand measurement model, the demand in the second quarter was 2.71 million tons, an increase of 16.6% year-on-year and an increase of 1.73 million tons. From the year-on-year comparison of demand, the cumulative increase in the first two quarters was 13.5% year-on-year and 3.8% quarter-on-quarter.

From the above data, we can conclude that the increase in demand is more obvious, especially in the second quarter, the growth rate of demand is the fastest, which is one of the reasons why the market is tight. The reasons for the rapid increase in demand are as follows: First, the counter-cyclical adjustment of the national economy has made steel demand continue to improve. Second, under the leadership of steel mill profits, the operating rate has been maintained at a high level. From the data point of view, the spot shortage in the second quarter was in the supply growth rate of 6.1%, the demand growth rate was 17.3%, the supply and demand growth rate difference was around -11.1%, and the supply growth rate was slower than the demand growth rate, which made the market appear biased. Tight state.

For the assessment of the next three quarters, we believe that the demand in the third quarter will not be too bad, and the phenomenon of “low season is not weak” has emerged. Despite the impact of environmental protection and production restrictions, we believe that although the crude steel output of steel mills will decline to some extent, in order to maintain profits, steel mills will not fall too much in terms of thread output, and they are still optimistic about thread demand. According to our estimates, the demand in the third quarter is about 2.8 million tons, and the difference between supply and demand is about 10 tons. From the perspective of growth rate, the supply growth rate is around 4%, and the demand growth rate is around 3%. If there is not much change, the market still Maintain a relatively tight balance.

Second, ferrosilicon supply and demand assessment

Supply: From the data point of view, the national output in the second quarter of 19 years was 1.293 million tons, an increase of 5.2% year-on-year and a decrease of 5.1%. The cumulative output in the first two quarters was 265.5, a cumulative increase of 4.5% year-on-year and a 4.9% decrease from the previous quarter. From the perspective of national production, the output in the second quarter of 19 years has dropped significantly. The reason is that the spot price has been running at a low level in the second quarter, and the profit of the alloy factory has been gradually reduced. Under the low profit, the enthusiasm of the start of the alloy factory has led to a decline in production.

In terms of regions, the decline in production in Gansu is more obvious. In the second quarter of 19, the output was 91,100 tons, down 22.2% year-on-year and 4.7% quarter-on-quarter. In the first two quarters, the cumulative year-on-year production fell by 22.3%, down 19.8% from the previous month. The large probability of decline in yield in Gansu is related to the production of magnesium metal. The gradual weakening of the metal magnesium market has reduced the amount of magnesium in Gansu. Another reason is the profit. In the second quarter, the price of ferrosilicon has been running at a low level, which has reduced the supply of production. In the second quarter of Ningxia, the output was 260,300 tons, an increase of 12.1 million tons, but it was down. And we found that the output of the main producing areas in the second quarter has declined, with the largest decline being -18.1% in Qinghai, followed by -4.44% in Inner Mongolia.

For the third-quarter production forecast, we believe that there will be some increase in production, but the increase is relatively small, or the probability is maintained at a stable level, and the output between individual major producing areas will be adjusted. According to the model, the output in the third quarter of 19 years was 1.32 million tons, and the monthly average output was about 440,000 tons. In terms of regions, Inner Mongolia's output is 450,000 tons, Ningxia is 280,000 tons, Qinghai is 260,000 tons, and Gansu is 110,000 tons. The reasons for the increase in production are as follows: First, the profit of the alloy factory is restored, and the production enthusiasm is improved. Second, the policy of encouraging electricity use in the main producing areas has caused the cost of electricity to fall. In Gansu and Qinghai, the policy of encouraging electricity use was introduced, and preferential policies on electricity consumption were given on the accumulated electricity. Third, the launch of new capacity. According to the understanding, Dazheng Weiye and Zhongda Chemical have newly built two 33000KVA and 45000KVA submerged arc furnaces respectively. Although the Sanyuan area in Ningxia has been affected by equipment renewal, the production cut in two months affected the output of 22,000 tons, but the new capacity is enough to make up for the market shortage.

On the demand side: the demand for ferrosilicon is mainly divided into steel mills, magnesium metal and exports. With the beginning of the trade war, under the influence of export tariffs, the export price of ferrosilicon does not occupy too much advantage, resulting in relatively small export volume. The monthly export volume is about 40,000 tons, and the internal and external price difference is 100 yuan. Within / ton, the export increment is not obvious, and the high probability maintains a relatively stable state. Metal magnesium: Due to the price, its output has been running at a low level, making its demand for ferrosilicon relatively small. In the short term, it is not optimistic about the demand for magnesium metal. If the output of magnesium metal is increased, it will be the margin of ferrosilicon demand. Incremental. The demand for ferrosilicon is steel mills and social stocks, of which steel mills account for 60-70%. The crude steel output will not be described in the previous analysis.

According to the model construction supply and demand evaluation table, in the second quarter of 19th, the digestive storage stage, the supply reduction was 5.1%, the demand increase was 9%, and the supply and demand difference was -14.1%. The data verification can also be reduced from the social inventory. Something discovered. According to our calculation, the demand in the third quarter is about 1.3 million tons, the growth rate is -5%, the output of ferrosilicon is 1.32 million tons, and the output growth rate is 2%. On the surface, demand growth is slower than output growth, but we ignore the increase in social stocks. If the growth rate of social stocks increases, there will still be a relatively tight supply and demand situation. However, when social stocks are converted into spot sales, there will be a certain impact on the spot.

Third and third quarter market concerns

In the third quarter, we believe that the demand side is not on the supply side. In the process of gradually recovering profits, the supply of alloy factories will not be greatly reduced, and the probability of maintaining a steady increase will be maintained. If the supplier is disturbed more may be policy disturbances, such as environmental factors, power factors, etc. On the demand side, there will be no bad performance in the third quarter, and the phenomenon of “low season is not light” has emerged, but we also need to pay attention to several important variables affecting alloy demand.

1. Policy disturbances still exist

From the demand side, policy disturbances still exist. The environmental protection and limited production in the Tangshan area will have an impact on crude steel production, which will theoretically affect the demand for alloys. However, we must also determine the amount of alloy influence based on the implementation of the policy. For steel mills, the country’s anti-economic regulation and the issuance of local government’s special debts, the superimposed infrastructure policy has kept the demand for steel in the society at a high level. When the demand for steel in the society remains high, the output of the steel mill will remain at a high level, so the demand for the alloy will not be too bad. In the later stage, more attention should be paid to policy changes, resulting in changes in demand.

2. Steel mill profit status and steel mill operating rate

From the above we also found that the profit of steel mills in the gross profit of thread and hot rolling is around 400, and the profit of cold rolling is less than 100. With the increase in ore prices, the cost of steel mills has increased significantly. In the case of limited space for spot prices, the profitability of steel mills will not be too good. Looking at the operating rate of the steel mill again, the operating rate of the blast furnace has been maintained at around 70-80%, and the operating rate of the electric furnace is around 70%. If the profit situation in the later period is not very good, the operating rate of the steel mill will drop, and the demand for the alloy will also drop.

Fourth, the market outlook and strategy

Market outlook

Silicon-manganese: In the case of both supply and demand, the development of the later market is more cautious, and the turbulent thinking dominates. On the supply side: supply in the northern region remains relatively stable with power factors and new capacity not fully released. As the southern region gradually enters the flood season, the resumption of production increases with the reduction of electricity costs, and the overall supply is sufficient.

On the demand side: in the case of a low season, the demand is not overly worried. In the state of relatively tight supply and demand, most of the market maintained a volatile market.

The reason: First, the price of foreign manganese ore is rising from the downturn, and the cost trend is more obvious. Second, the supply and demand structure determines that the spot market is still difficult to be relatively short. If the profit level rises later, the increase in production may change the structure.

Risk point: The implementation of the production restriction policy is expanding and the demand is rapidly declining.

Ferrosilicon: From the perspective of supply and demand structure, the demand for ferrosilicon is relatively stable. This year, due to export tariffs and domestic market environment, the demand for export and metal magnesium has decreased, but with the increase in crude steel output and scrap. The increase has led to an increase in the amount of ferrosilicon. The supply variable is not large, and the operating rate of the alloy factory is relatively good. We believe that the variable affecting the market of silicon iron is the change of social stocks. From the perspective of basis, the current spot premium of spot is 200 yuan/about, and the risk-free arbitrage of the disk has already appeared. If the late set of insurance increases, the possibility of weakening the market will increase.

2. Strategy

Strategy: Silico-manganese maintains a relatively cautious attitude, and the market has a high probability of volatility. After the steel mill's profits are restored, the steel mill's pressure on the alloy will be relaxed. In addition, the current spot is still relatively tight. If the demand in July-August is still good, the spot is tight, and the delivery logic will appear in September, and the market will usher in a wave of gains.

In terms of ferrosilicon: the surface of the ferrosilicon surface is about 200 yuan/ton, and the emergence of risk-free arbitrage opportunities has caused the company to participate in the increase. The basis of the strong logic appears, and the supply and demand structure is relatively stable, the disk surface has a high valuation.

Cross-species arbitrage: The current price difference between the two alloy varieties is high and there is no good opportunity to enter. From the relationship between the strengths and weaknesses of the two varieties, silico-manganese will fluctuate at a high level, and the ferrosilicon will have a significant drop in space due to the sharp rise in water and the adjustment of the disk surface. Cross-species arbitrage recommendation, multi-silicon manganese, empty silicon iron strategy, silico-manganese does not think it will rise too much, but it is more powerful than silicon iron.

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