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The steel market is showing signs of recovery as downstream demand improves, leading to a continued drop in rebar and billet inventories. Supply has remained stable, and the fundamentals of the steel industry are gradually improving. Once market confidence returns, steel prices are likely to reach their bottom and begin a rebound.
First, terminal demand is rising, driving inventory down. 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 fell for the seventh consecutive week, reaching 2006 tons, down 0.89% from the previous week. Rebar stocks dropped by 1.6%, while wire rod inventory fell by 2.26%. Meanwhile, billet stocks in Tangshan have also seen a significant decline, dropping from 1,979,000 tons in mid-March to 1,224,000 tons, showing a clear downward trend.
Second, ore prices remain relatively strong in the short term. Although the long-term outlook for the ore market suggests a surplus, prices are unlikely to see major fluctuations before the second quarter. This is due to several factors: first, new output from foreign mines will be released in the third and fourth quarters, adding about 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, supporting recent price stability. Finally, mine output has not yet increased, and current ore prices are still profitable for domestic producers, but many mines that closed during winter have little incentive to restart.
Third, rebar production losses are increasing, which could lead to a potential supply reduction. Despite a general decline in global commodity prices, steel prices have fallen repeatedly, with the 1310 contract hitting around 3570 and the 1305 contract falling to 3418. While ore prices have only slightly declined, steel mill profits have worsened. Last week, rebar production losses reached nearly 200 yuan, and many small, high-cost mills are struggling. Although steel prices have recently recovered, ore prices have also risen, leaving mill operations unchanged. If losses continue, domestic supply may decrease.
Fourth, in the long run, current steel prices are at a low level. The spot price of Grade 3 rebar in Shanghai is currently around 3500 yuan. Compared to the same period in previous years, this price drop has been more abrupt. From this perspective, the current steel price is near its stage low and holds growth potential. Additionally, the spot index shows that the market is currently in a premium state, suggesting further upside potential.