Hygienic-grade ball valves’ profitable contraction and environmental protection limit production lead to a gradual decline in the supply of sanitary-grade ball valves

Profit contraction and environmental protection limit production lead to the staged decline of sanitary ball valve supply

Since September, under the influence of multiple factors such as negative macroeconomic outlook, weak demand for health-grade ball valves, and unexpected accumulation of inventories, the futures have declined significantly. The intensified trade situation last weekend further pushed prices down. As for the price trend of sanitary ball valves in the later period, we believe that the downward trend in the medium term has been established, but there is still the possibility of a staged rebound in September. Mainly based on the following logic:

1. Supply side

Since the end of July, due to the narrowing of profits of steel mills and the tightening of environmental protection in various places, the inflection point of sanitary ball valves has appeared, falling for three consecutive weeks, and the lowest since April. Specifically, the amount of production reduction mainly contributes to short-process enterprises, and it is not obvious for long-process enterprises to reduce production. The main reason for this phenomenon is the difference in profits between the two. At present, short-process enterprises are in a state of continuous loss. Taking into account the current tight supply of scrap steel, steel mills raised their scrap prices last week, which will further squeeze the profits of electric furnace companies and cause their output to continue to decline. Long-term process enterprises are still motivated by profits, but considering that before the 70th anniversary of Daqing, it will be a high probability that environmental protection will be tightened. Although this year ’s emphasis on prohibiting “one size fits all”, the sanitary-grade ball valve market still has short-term concentration Expectations of production limitation. In addition, if the price of stainless steel flanges continues to fall near the long process cost line, it will also cause steel mills to actively limit production and stop production.

2. Demand

At the end of July, when the Politburo meeting clearly stated that real estate should not be used as a short-term economic stimulus, real estate control policies as a whole showed a tightening trend, especially the suppression of funds in the real estate industry. We can see that real estate investment and new construction area have peaked since the second quarter. Since the growth rate of land purchase area has declined at an average monthly rate of 30% this year, the decline in land transaction area in 100 cities has continued to expand. Tightening, it is expected that the downward trend of building materials demand in the medium term should have been established. But in the short term, there is still some resilience in the demand for building materials. On the one hand, since August, the high temperature and rainy weather have suppressed the release of demand for stainless steel flanges. At present, these factors have begun to subside, and before the 70th anniversary of the Daqing, the market is still likely to hurry up, so there is a short-term concentration of market demand in early September Possible release. On the other hand, the real estate stock construction will still form a certain support for the demand for building materials. For the strength of short-term demand, it is recommended to focus on the two indicators of building material turnover and inventory. If these two trends continue, it means that the demand for stainless steel flanges has indeed improved.

Third, the cost side

In August, under the influence of the two expectations of rebounding supply and weakening demand, the price of ore fell sharply. However, from the current situation, the price of ore continues to fall. There is limited room for the price of ore. First, according to the shipment volume, the inventory of ore ports in early September is still There is a possibility of falling back. The second is that after a sharp decline, the cost-effective advantages of high-grade mines appear, so in the context of environmental protection and limited production, there may be hype ore structural problems again. The third is that the level of ore inventories in steel mills is not high, and there is an enthusiasm for replenishing inventories in stages after a sharp decline in the previous period. In addition, the intensified trade situation has led to the continued weakening of the RMB exchange rate. Once market sentiment improves, this factor will also be reflected in the disk. If the short-term stop of the mine price is expected to also support the price of stainless steel flanges.

On the whole, in the context of the decline in demand for capacity expansion mismatches, the downward trend in the medium term has been established. However, there is still the possibility of a phased rebound in the short cycle, mainly due to the contraction of profits and the environmental protection of production restrictions, resulting in the phased decline in the supply of health-grade ball valves, the seasonal demand rebound and the rush time. A certain boost to the sanitary ball valve market. For operational recommendations, we recommend short-term treatment. After expecting to expect the peak season to be fulfilled, you can continue to consider rallies.