Steel Prices Ushered In A “Good Start” After Chinese New Year Holiday

Steel prices ushered in a “good start” in the first week post the Chinese New Year (CNY) holiday amid optimistic sentiment. The steel prices in mainstream markets recorded a gain of 200 yuan/mt from the pre-holiday level. On the raw materials side, coke prices, however, dropped by around 400 yuan/mt due to stricter production restrictions of steel mills. Nonetheless, iron ore prices demonstrated some upside potential amid comparatively strong estimate after frequent regulations from the policy end.

Rebar output dropped to multi-year low on the back of stricter production restrictions. The production of steel mills in south China was relatively smooth, while that in north China was strictly contained by production restriction measures. Meanwhile, most independent EAF mills have not resumed the production. The output and inventory of rebar were at a low level in the same period in the past three years in lunar calendar. Going forward, the output of rebar is unlikely to see great increases though some EAF mills will resume the production. The difficulties of steel scrap procurement as well as the lagged materialisation of steel mills’ profits will suppress the production enthusiasm. The operating rates of blast furnaces dropped significantly from the pre-holiday level, mainly contributed by north China, according to research. In addition, the steel mills in Henan, Shandong, Shanxi and Hebei are expected to be restricted by more stringent production controls. As such, rebar output will stay low from late February to early March. Hot-rolled coil (HRC) output, on the other hand, continued to fall in the first week after the CNY holiday. Looking forward, HRC output in north China will remain low amid constant production restrictions.

Demand side still stagnated in the first trading week post CNY holiday. In terms of rebar, the spot market has not been revived as the construction projects were still suspended, resulting in thin terminal transactions. In the follow-up, the terminal sector will mostly resume the work after Lantern Festival. Meanwhile, there have been frequent positive news from the macro front: China’s social financing increased in January, new RMB loans and M2 in January all increased significantly, boosting strong bullish sentiment. In terms of HRC, the post week was still the CNY holiday for some terminals and traders, hence they have not officially resumed work. The overall market demand stagnated. In the follow-up, at the beginning of the new lunar year, many local government authorities and parties will start a new round of promotion for “new infrastructure” in order to ensure the steady growth of demand in 2022. With strong policy expectations, the market is more optimistic about the demand for HRC in the first quarter.