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The Cost Decides the Value Center of the Steel Price

The cost and the steel price are interactive and supplement each other. When the cost increases, the steel price has the rising motivation; when the steel price falls, the material price then goes down as well. When the cost center goes down, the steel price will be impacted again, even it is possible to be below the cost.

After the analysis of data statistics, during the falling process of the steel price, the falling of material price is somewhat lagging behind with the lag period of 10-15 days. But the cost falling is about one month, which is longer. To a large extent it is concerned with the material inventory period in the steel works. During the process of the stabilization and recovery of the steel price, the material price is stabilized earlier than the steel price, little time difference. Now, it is obvious that the cost plays the supporting position for the steel price.

Transmission Mechanism of the Steel Price: the Dynamic Balance of Supply & Demand Mode

The changes between supply & demand and cost are the main factor to decide the steel price. The steel price fluctuation is the dynamic balancing process of the supply & demand mode.

Just as this September and October, the steel price fell dramatically, while the cost remained high. As a result, the profit of steel works sharply reduced, even loosed. The steel works had to cut the products. The effect of cutting products is reflected in the spot goods market. The market supply tightened, and the inventory reduced. As for the demand & supply, if the demand is weak and its falling is more than the supply decline, the demand & supply mode will be worsen, and the steel price will fall as well. If the demand becomes fine or stable, the demand & supply mode will be changed so that the steel price will rebound or rise in a short period.

When the steel price appears to rebound and rise, the profit margins of the steel works will expand. Stimulated by the profit, the steel mill will appear the increasing production, leading to the increasing of market supply and the rising of the inventory. If the market demand and supply becomes good and the demand growth is more than supply growth, the supply & demand mode will change, and the steel price will be rising gradually. If the demand is stable or fragile, the supply & demand mode will be worse so that the steel price will fall.

Therefore, the steel price fluctuates focusing on the cost under the common impact of the supply & demand.

The Inventory is the Comprehensive Reflection of the Supply & Demand Mode

How to observe and appraise the change of supply & demand mode? The inventory is the comprehensive reflection of the supply & demand mode. We often heard that ¡°removing and supplementing the inventory¡±, but how the different inventories reflect the supply and demand and what the influence for the steel price is? There are some of mistakes for the inventory, it is generally acknowledged that the steel price will fall at the removing inventory period and the steel price will rise at the supplementing inventory period, but it is not. No matter it is removing inventory or supplementing inventory, we needs to be considered that it is active style or passive style.

The reducing of passive inventory: when both the cost and the inventory appear to reduce, the supply will start to be active. But the speed of steel mill¡¯s operation is at the beginning recovering period. At this moment the steel price is possible to be stable and recovered. The increasing of active inventory: when the supply & demand is vigorous, during the expanding process of steel mill¡¯s scale and operating rate, the inventory will be at the state of active increasing, and the steel price will be possible to rise. The increasing of passive inventory: when the real market demand hardly follows the pace of the expansion and operation, the inventory will appears to passive increasing, and the steel price will be sluggish even with the risk of falling again. The reducing the active inventory: because the demand & supply turns to be weak, the merchant will be forced to throw the products to lower the inventory, and the steel mill will forced to reduce the operation to lower the price, so as to lead to the falling state of the steel price and the inventory.

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