steel products The cyclical fluctuation of price is a comprehensive reflection of the market cycle of the steel industry, and it is the result of the chain effect of price benefit investment capacity supply and demand. On the whole, there are the following factors that affect the change of steel price: first, the production cost, which is the basis for the change of steel price; The second is the relationship between supply and demand, which is the key factor affecting the change of steel prices; The third is the market system. A defective market system may magnify the imbalance between supply and demand, resulting in sharp fluctuations in prices.

1. Cost element composition

Raw material cost

Iron ore is the most important raw material for steel production. The price and quantity of imported ore and domestic ore purchased by different steel enterprises are different, and the technical and economic indicators of each blast furnace are different, so the cost of raw materials of each steel enterprise varies greatly.

Energy cost

Coke is a necessary reductant, fuel and column framework for steel production. At the same time, coking coal, water, electricity, wind, gas, oil and other public media are also consumed in iron and steel production. The price and quantity of these public media purchased by different iron and steel enterprises are different, and their respective technical and economic indicators are different, so the cost of energy and public media varies greatly among iron and steel enterprises.

Labor cost

Labor cost is an important cost in the steel industry. Although there is a big gap between China's physical labor productivity and that of developed countries, the gap between the unit labor cost (mainly the per capita income level) is even greater. Therefore, the labor cost in China's steel ton shipment is about one-third of that in developed countries, and half of that in foreign countries. On the whole, the gap of labor cost between iron and steel enterprises in China is not obvious.

Depreciation and interest

Large equipment investment is an important feature of the steel industry. Globally, except Japan, steel enterprises in the United States, Europe, South Korea and China generally use normal depreciation, while Russia's depreciation rate is the slowest. As the iron and steel industry is capital intensive, the asset liability ratio of China's iron and steel enterprises is generally above 50%, so the change of national monetary policy will seriously affect the financial expenses of iron and steel enterprises

Affected by the substantial growth of steel production capacity and the shortage of steel raw materials and fuels, the prices of iron ore, coke and other steel raw materials and fuels have risen significantly since 2001. Especially since 2004, the long-term contract price of imported iron ore has risen sharply year after year, which has made the purchase cost of iron ore of steel enterprises rise sharply. Compared with 2002, the long-term contract price of international iron ore in 2007 increased by 288.9%. In 2007, the average purchase cost of domestic iron concentrate of large and medium-sized iron and steel enterprises increased by 108.2% compared with 2003, and the purchase cost of coking coal increased by 91.7%.

The rise in the price of raw materials and fuels has greatly increased the production costs of iron and steel enterprises. The average cost of steelmaking pig iron of large and medium-sized iron and steel enterprises in 2007 increased by 71.8% over 2003, the average cost of ordinary carbon slab increased by 56.2%, and the average cost of hot-rolled coil increased by 56.6%.

In the middle of February 2008, Vale, the world's largest iron ore supplier, reached an agreement with the world's major steel producers on the supply price of iron ore in 2008, and the benchmark price increased by 65% on the basis of last year. The production cost of domestic steel enterprises has been further increased.

2. Equipment and technology level

During the "Tenth Five Year Plan" period, the investment of iron and steel enterprises in improving equipment level, scientific and technological progress, energy conservation and consumption reduction has increased significantly, which has significantly improved the equipment level of China's iron and steel industry, made remarkable achievements in energy conservation and consumption reduction, and comprehensive utilization, playing a great role in reducing costs.

3. Investment cost per ton of steel

As a capital intensive industry, the investment cost of the steel industry is also an important factor affecting the price of steel. Since 2001, the investment per ton of steel has shown a downward trend.

The main reasons for the sharp drop in investment per ton of steel during the "Tenth Five Year Plan" period are as follows:

First, the proportion of private enterprises increased significantly. 2001-2003 is a period of great development for private enterprises. Because the products of private enterprises in this period are mainly long materials, narrow belts and other low value-added products, and domestic equipment is usually used, with less investment and fast recovery. Generally, the investment in the scale of one million tons is about 1 billion yuan, and the average comprehensive investment in per ton steel is only 1000 yuan.

Second, the level of equipment localization has been greatly improved, saving investment costs, for example, a set of high-speed wire rod Domestic equipment is only one fifth of that of imported equipment. Not only private enterprises use a large number of domestic equipment, but also some super large state-owned enterprises use more and more domestic equipment.

Third, the iron and steel industry is an industry with obvious scale benefits. With the large-scale equipment, continuous and compact production, the unit product investment has dropped significantly.

4. Relationship between supply and demand and economic cycle

Although the production cost is the basis of the price change of steel products. However, the relationship between supply and demand is an important factor affecting the price trend. When the cost is relatively stable, when the supply exceeds the demand, the price will fall; When supply falls short of demand, prices will rise. The figure below shows the change of China's GDP growth rate and fixed asset investment growth rate, from which we can see that steel prices have a strong correlation with China's economic cycle.