Forget the “Peak Season”! Has the Steel Market Been “Damped Down” Again?

Despite the Federal Reserve’s aggressive 50-basis-point interest rate cut in September, more than a month later, this interest rate easing cycle seems increasingly unlike a typical easing cycle… This has had a significant overall impact on domestic policies, and currently, every move in the steel market follows shifts in economic expectations and capital orientation. Therefore, we focus on policy changes.

The U.S. market has started to speculate loudly. Are we currently in the “early spring” of an easing cycle, or still in the “severe winter” of a tightening cycle?

Today, expectations of interest rate cuts by the Federal Reserve have begun to decline, and some markets are discussing the conclusion of no rate cut in November, which undoubtedly brings negative impacts on commodity markets, including the steel market, causing the entire black metal sector to start declining.

In fact, since the National Day holiday, the average price of the construction steel market has been weak overall, with a decline of 6.61%. Specifically, as of October 21, the national average price of rebar was 3,572 yuan/ton, down 253 yuan/ton from October 8, a decrease of 6.61%.

Steel prices have entered a volatile adjustment range, and after sharp fluctuations, market sentiment has returned to a stable stage. The main factors include:

Firstly, with profit recovery before the holiday, steel enterprises have become more enthusiastic about production, increasing resumption of production and overall output.

Secondly, as the weather turns colder in the north, downstream demand gradually shrinks, and rigid demand gradually decreases.

Thirdly, futures have experienced volatile declines, and market sentiment is low. With futures and spot prices resonating, spot prices have followed suit, declining accordingly.

Support from the raw material end is gradually decreasing. On October 22, some steel plants in the Tangshan market planned to reduce wet-quenched coke prices by 50 yuan/ton and dry-quenched coke prices by 55 yuan/ton, effective from 00:00 on October 23, 2024. Some steel plants in the Xingtai region reduced wet-quenched coke prices by 50 yuan/ton and dry-quenched coke prices by 55 yuan/ton, also effective from 00:00 on October 23, 2024.

Coke prices for both grades have begun to decline. Steel plants are operating at high levels, and there is still rigid demand for coke. However, considering the continuous weakening of steel prices, narrowed profit margins for steel plants, and improving coke arrivals at steel plants, coke inventories have started to rebound. Steel plants are adopting a cautious procurement attitude towards coke, and their willingness to control volumes and press prices is becoming increasingly apparent.

In such a lackluster market, we can ponder three questions.

Why does the steel market follow the stock market’s ups and downs? Because the issue of steel demand has not been effectively resolved, and capital controls the market. From January to September, national real estate development investment amounted to approximately 7.87 trillion yuan, a year-on-year decrease of 10.1%. Demand has been declining for a long time.

Why haven’t steel prices continued to fall? Because they are supported by expectations of macroeconomic policies to stabilize the economic situation, with real estate serving as an important pillar. Therefore, when demand is insufficient, money is used to make up for it! Directly introducing measures such as optimizing housing reform, promoting inventory digestion, and reducing home-buying costs are merely bottom-supporting measures.

Will prices rise again in the future? I believe there is a chance, but it requires the coordination of macroeconomic policies and capital. It is likely that more favorable macroeconomic policies will be released, and capital will once again drive steel prices in tandem with expectations. However, with increasing steel plant supply, this will become a “stumbling block” for further gains.

Overall, it will take time for macroeconomic policies to be implemented, and traditional peak season demand has not been fully met. At the same time, steel plant molten iron production is still increasing, steel plant production resumption is ongoing, and coke price reductions have begun. The overall cost support maintains a certain degree of resilience. In such circumstances, it is difficult for steel prices to experience significant fluctuations.