Production capacities may go up in 2018
Baosteel expected the steel industry to release more production capacities in2018 because the de-capacity target for 2018 in China at 25mtpa is only halfof the target for 2017 at 50mtpa. The company’s new EAF productions and thecompleted capacity replacement projects may drive its production capacities togo up in 2018 . The main capacity replacement projects are Phase I (c.4mtpa) andPhase II (c.4mtpa) of Rizhao steel mill in Shandong Province. Phase II will be putinto operation in the second half of 2018 according to the company.
Mild price correction and continually resilient spread in 2018
In 2017, overcapacity cut and winter production shutdown policy affected steelcompanies’ production capacities and the commencement of new construction,which drove the steel price to largely increase. The rebar price particularlyexceeded RMB5,000/t in December 2017 with gross profit margin at c.RMB1,500/t. Thus, price correction began at end-2017 and may continue in 2018. Baosteelexpected the rebar price to drop by RMB800/t from the current price level. As theeffects of the government policies that were executed in 2017 may extend into2018, the company expects a mild price correction and guided steel spread tostay relatively resilient with stable annual average selling price in 2018.
Long steel profits may not have premium over flat steel profits in 2018
Long steel was overall more profitable than flat steel in 2017. However, thissituation is contradictory to the demand trends of long steel and flat steel. Marketdata showed a stable trend of flat steel demand from auto and home applianceindustries and a declining trend of long steel demand from infrastructure andproperty industries. Thus, the outlook of flat steel in 2018 should be more positivethan long steel. Long steel profits may not have premium over flat steel profitsin 2018.
Ramping up EAF may become a trend
In 2017, IF furnace was fully replaced by EAF and BF. Although the governmenthas not promulgated policies to promote EAF, Baosteel started EAF productionduring 2017 (2mtpa in 2018). The industry’s EAF capacities should remain thesame at 15mtpa in 2018. The company’s production output of EAF in 2018 willbe higher than 2017 because of the full-year operation in 2018.