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Recent improvements in downstream demand have led to a continuous drop in rebar stock levels, while Tangshan billet inventories have also seen a steady decline. Supply conditions remain stable, and the fundamentals of the steel market are showing signs of improvement. Once market confidence returns, steel prices are expected to reach their bottom and potentially rebound.
1. **Growing Demand and Falling Inventory**
High inventory levels have long been a key factor affecting steel prices. However, with the recovery of downstream consumption, even as national production hits record highs, steel inventories continue to fall. As of last week, total national steel stocks have declined for seven consecutive weeks, reaching 2006 tons, down 0.89% from the previous week. Rebar stocks fell by 1.6%, while wire rod inventories dropped by 2.26%. Meanwhile, billet stocks in the Tangshan region have also been on a downward trend, decreasing from 1,979,000 tons in mid-March to 1,224,000 tons now. This clear decline suggests that demand is starting to outpace supply.
2. **Short-Term Strength in Ore Prices**
Although the long-term outlook for iron ore may point toward a surplus, short-term price movements are likely to remain stable, especially before the second quarter. Several factors support this view: First, new output from overseas mines is expected to increase significantly in the third and fourth quarters, adding around 50 million tons of capacity. Second, domestic steel mills are holding very low ore inventories—down to just one week’s worth, nearly at the minimum required for normal operations. Third, port inventories are also low, providing support to current prices. Finally, many mines remain closed due to winter shutdowns, and with current ore prices only slightly profitable, there is little incentive to restart production.
3. **Rising Production Losses and Potential Supply Reduction**
In the past month, rebar production losses have increased, and if this trend continues, future supply could decrease. Despite falling commodity prices globally, steel prices have dropped repeatedly, with the 1310 contract hitting around 3570 and the 1305 contract reaching a low of 3418. While ore prices have fallen slightly, steel mill profits have deteriorated. Last week, rebar production losses reached nearly 200 yuan, with many high-cost small mills struggling to stay afloat. Although steel prices have recently recovered, ore prices have also risen, leaving steel mills in a difficult position. If losses persist, domestic supply could shrink further.
4. **Current Steel Prices Are at a Low Point**
As of this week, the spot price of Grade 3 rebar in Shanghai is around 3500 yuan. Compared to the same period in previous years, this price level appears unusually low, indicating a potential for growth. Additionally, the current spot index shows a premium, suggesting that the market is already pricing in a recovery. With inventory continuing to decline and supply conditions tightening, the steel market may be approaching a turning point. Investors and traders should keep a close eye on these developments as they could signal a shift in the broader market trend.