Observation stakes and observation nails at observation points in Gansu

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　　Observation stakes and observation nails at observation points in Gansu

　　After the Spring Festival, the level of social inventory is usually within the year. On the one hand, downstream traders and terminals will carry out winter storage and stocking before the festival. On the other hand, downstream demand stagnates during the Spring Festival, and post holiday demand has not yet started, resulting in continuous transfer of steel mill inventory to social inventory. Therefore, post holiday social inventory will reach a high point of the year. In the following months, as downstream demand recovers, inventory continues to deplete. By around the third quarter, inventory will reach its second small high point of the year, but the two highs cannot be compared.Statistics of inventory increment before and after the Spring Festival in previous yearsAccording to historical data statistics, it can be observed that one week after the Spring Festival, compared to before the festival, the social inventory of rebar increased by 1 million to 3 million tons, and the social inventory of steel increased by 2 million to 4 million tons. Downstream demand generally starts around the 15th day of the first lunar month, so the peak of social inventory usually occurs in the third or fourth week after the holiday. The peak of social inventory of rebar is about 2-6 million tons higher than the week before the Spring Festival, and the peak of social inventory of steel is about 4-9 million tons higher than the week before the holiday. Among them, 2020 is relatively special, affected by the postponement of demand after the holiday, and steel mills continue to increase production, resulting in inventory peaks appearing around the 7th week after the holiday. In terms of inventory levels, in recent years, the peak of rebar inventory has exceeded 10 million tons, while the peak of steel inventory has been around 20 million tons.Changes in steel plant production before and after the Spring Festival in previous yearsFrom the perspective of process flow, steel enterprises are divided into long process enterprises and short process enterprises. Independent short process enterprises have higher production flexibility and generally experience large-scale production shutdowns before the Spring Festival. Production resumes gradually around the 15th day of the first lunar month. Independent short process enterprises mainly focus on products such as threaded steel, profiles, and other long materials. Due to the shutdown of the enterprise, the contribution of electric furnace steel production showed a cliff like decline before the Spring Festival, followed by a V-shaped increase after the holiday. Long process enterprises, except for special regulations on production restrictions and maintenance, are considered to have continuous production and normal production during holidays. After the completion of the task of reducing crude steel production in the steel industry in 2021, long process enterprises began to resume production in December last year. However, due to factors such as heating season restrictions in some regions, the operating rate of blast furnaces in steel enterprises is still at a relatively low level during the same period, and production is also at a low level during the same period. According to the weekly production data of Steel Union over the years, the production in the first week after the Spring Festival is lower than before the festival, and usually reaches the pre festival production level in the second or third week after the festival. In the past five years, the pre holiday production of threaded steel has been between 2.9 million and 3.2 million tons per week, and the steel production has been between 9 million and 10 million tons per week. As of January 20th, the weekly production of rebar was 2.636 million tons, and the steel production was 9.1 million tons, which was roughly the same as the same period in 2017 and lower than the same period before the Spring Festival in 2018-2021. During this year's Spring Festival in Beijing, some steel companies in Tangshan, Wu'an, Shandong, and Henan experienced blast furnace shutdowns and production restrictions from January 30th to February 20th. Enterprises in non restricted areas may continue to resume production, but given the large proportion of crude steel production in restricted areas, the impact of restricted areas on supply may be greater than resuming production.Prediction of social inventory after the Spring FestivalBased on the analysis of production and inventory mentioned above, an estimate of the social inventory level after the 2022 Spring Festival will be made based on the inventory levels in the two weeks before each year's holiday. In the second week before the Spring Festival this year, there were 4.17 million tons of rebar in the warehouse and 9.72 million tons of steel in the social inventory, both of which were low values in the same period before the Spring Festival in 2017. The inventory will continue to accumulate in the week before the holiday, with the rebar warehouse possibly ranging from 4.5 million to 4.8 million tons and the steel warehouse possibly ranging from 10.2 million to 10.8 million tons. At present, the weekly production of rebar and steel is at the same level as the same period in 2017. Based on the inventory increase standard in 2017, the peak of rebar inventory after the holiday may increase by 3-4 million tons before the holiday, and the peak of steel inventory may increase by 5.5-6.5 million tons before the holiday. Based on this calculation, it is expected that the peak of rebar inventory after the holiday may be around 10 million tons, and it cannot be ruled out that it may be less than 10 million tons. The peak of steel social inventory may be around 18 million tons. If according to the estimated data, both rebar and steel are at a relatively low level in the same period of 5 years in social inventory, coupled with the gradual start of downstream demand after the holiday, the rebar market will receive significant support. In terms of risk factors, if steel companies resume production on a large scale during and after the Spring Festival, resulting in an increase in market demand, it will push up the inventory peak.

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