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Supply and demand facing mismatched steel prices are expected to experience a round of increase

2024-02-22

During the Spring Festival holiday, international commodities represented by crude oil and London copper showed overall strong performance, while domestic tourism and film box office data also showed strong performance, leading the market to hold optimistic expectations for domestic steel spot prices after the holiday. On February 18th, the steel spot market opened well as scheduled, but the futures of rebar and hot-rolled coil showed a trend of high opening and low closing on the first trading day after the holiday. In the end, the main contracts of rebar and hot-rolled coil closed down 1.07% and 0.88% respectively, with intraday amplitudes exceeding 2%. For the unexpected weakening of post holiday steel futures, the author believes that the main reasons may be due to the following two points:


The rebound momentum of the stock market has weakened


Looking back at the market since the beginning of the year, both rebar and A-shares are two types of assets that have been greatly affected by macroeconomic factors. The price trends of the two reflect a strong correlation, and A-shares clearly occupy a dominant position. From the beginning of the year to early February, the Shanghai Composite Index continued to adjust, and rebar futures followed suit, but the magnitude was much smaller than the stock market. Since the Shanghai Composite Index hit bottom on February 5th, the rebar market has also stabilized and rebounded, with a smaller rebound than the stock market. From February 5th to February 19th, the Shanghai Composite Index rose a total of 275 points, and after a rapid rebound in recent times, it has approached the strong pressure level 60 day line. The resistance to continuing to break through in the short term has increased. In this context, steel futures continued to weaken with the momentum of A-shares, and short orders that had been reduced and exited before the holiday added up, causing the market to turn from rising to falling.




Supply and demand are in a dual weak stage


Currently, steel consumption is still in the off-season, and with the impact of the Spring Festival holiday, steel demand is still at its lowest point this year. Based on past experience, the total steel inventory will continue to accumulate seasonally in the next 4-5 weeks. Although the current inventory of hot-rolled coils and rebar is relatively low from the perspective of the Gregorian calendar, if the Spring Festival factor is taken into account, that is, from the perspective of the lunar calendar, the latest total inventory of rebar surveyed and counted is 10.5672 million tons, an increase of nearly 9.93% compared to the same period last year. The pressure on hot-rolled coils inventory is slightly smaller, with the latest total inventory of 3.885 million tons, an increase of 5.85% year-on-year. Before demand is truly initiated and inventory is depleted, high inventory of steel may hinder price increases. From previous years, the rise in steel prices after the Spring Festival is usually driven by macro expectations rather than fundamentals, and it is expected that this year will not be an exception.


Although steel futures did not achieve a good start on the first trading day after the holiday, the author still holds a slightly optimistic attitude towards the price trend of steel, especially rebar, in the later stage. At the macro level, in the current context of overall pressure on economic growth, the market has strong expectations for the implementation of macroeconomic policies. In the short term, with relatively flat fundamentals, strong expectations are expected to become the main logic of market trading. On the supply and demand side, steel supply and demand will gradually recover after the holiday, and attention should be paid to the recovery speed of supply and demand respectively. The difference between the two may become the focus of the market's long short game in the future. From the perspective of the lunar calendar, the current weekly production of rebar is 15.44% lower than the same period last year, and the weekly production of hot-rolled coils is 3.28% higher than the same period last year. According to calculations, the current profit margin of rebar and hot-rolled coils produced by the steel plant director's process