Steel Futures Approach 3000 Mark: Outlook for Future Steel Prices

Overview: Since entering the traditionally busy season of September, the steel market has continued to experience a sluggish decline. Iron ore futures saw a weekly maximum drop of over 11%, significantly dampening market sentiment. On September 6, the main rebar futures contract hit a low of 3014, just shy of the crucial 3000 mark, while the 2410 main steel futures contract has already breached the 3000 threshold, setting a new low since 2017. The current steel market remains weak, and the steel industry faces relatively severe challenges. Below is a brief analysis of the market outlook.

I. Prices of Most Steel Grades Return to 2017 Levels

Since the beginning of 2024, the global economic recovery has slowed down, with weakened manufacturing activities leading to a decline in steel demand. On the other hand, domestic steel overcapacity remains prominent, making it difficult to fundamentally alter the oversupply situation. Additionally, factors such as fluctuating raw material prices, tightened environmental policies, and uncertainties in the international trade landscape have exacerbated steel market volatility. Except for brief rallies in April and May, steel prices have generally been on a downward trend throughout the year. As of September 6, prices of most steel grades, including rebar, hot-rolled coils, and high-speed wire, have fallen by over 20% from the beginning of the year, with plain medium plates experiencing significant declines.

II. Latest Steel Fundamentals Show “Increased Supply, Decreased Demand”

According to data (as of September 5, 2024), weekly supply of the five major steel grades reached 8.0117 million tons, an increase of 225,100 tons or 2.9% from the previous week. In terms of inventory, total stocks of the five major steel grades stood at 15.0921 million tons, a weekly decrease of 537,400 tons or 3.4%. In terms of consumption, weekly consumption of the five major grades was 8.5492 million tons, down 2.66% from the previous week, with construction steel consumption falling 1.3% and plate consumption rising 0.3%. Fundamentally, the first week of September saw a weakening in data compared to the previous week.

III. Outlook for Future Steel Prices

1. Expectations of a Recovery Rebound After September Price Adjustments: At this juncture, steel futures prices continue to decline, and the fundamental recovery of the steel market still faceschallenges. The steel market may still experience short-term price fluctuations and adjustments, followed by expectations of a recovery rebound. Favorable factors for September include:

(1) With the arrival of the traditional peak demand season, although fiscal policies still constrain funding, the significant issuance of special bonds in the second quarter has provided a foundation for infrastructure projects to stabilize the market during the peak season. Manufacturing output momentum may continue to support seasonal improvements in steel demand, which is expected to rebound seasonally, providing some support to prices.

(2) Short-term profitability improvements for steel mills have led to increased production from blast furnaces and electric arc furnaces, boosting the supply of construction steel. However, recent market sluggishness and industry association self-discipline measures to control production may slow down production increases in September. Statistics show that total inventories of the five major grades are 15.0921 million tons, down 1.0724 million tons year-on-year, while total production is 8.0117 million tons, down 1.2123 million tons year-on-year. Low production and inventory levels provide a basis for a short-term rebound in steel prices.

(3) Policy and market sentiment: This week, based on U.S. economic data, expectations of a Fed rate cut in mid-to-late September have intensified, opening up room for China to cut interest rates and reserve requirements, thereby increasing the imagination space for subsequent monetary policy stimulus and potentially improving market expectations. Bloomberg quoted insiders as saying that China is considering further reducing existing mortgage rates and allowing refinancing of existing mortgages to reduce household debt burdens and boost consumption, which could help boost market confidence. Overall, after this round of rapid declines, steel prices are likely to experience a phased rebound ahead of the holiday season, driven by expectations of peak season demand against a backdrop of low production and inventory levels.

2. Medium to Long-term: Supply-Demand Balance and Transformational Upgrading

In the medium to long-term perspective, the trend of steel market prices will hinge on the rebalancing of supply and demand dynamics as well as the industry’s transformation and upgrading. With the continued implementation of the country’s economic stabilization policies and the increase in urbanization rates, the demand for steel in traditional industries will maintain a certain level of growth. Simultaneously, the consumption outlook in downstream sectors such as new energy vehicles, home appliances, and manufacturing is expected to drive market demand further. Nevertheless, the issue of overcapacity in the steel industry still necessitates gradual resolution through mergers and acquisitions, elimination of outdated capacity, and enhancing industry concentration. Moreover, steel enterprises must accelerate technological innovation and product upgrading, enhancing product quality and added value to compete effectively in the market.