2024-12-24
Major news continues to emerge; where is the steel market headed in the future?
On December 19, Beijing time, the Federal Reserve announced its last interest rate decision of the year, lowering rates by 25 basis points in line with market expectations. However, Fed Chairman Powell stated that despite this rate cut, future adjustments to monetary policy will slow down.
At the same time, the Fed's dot plot indicates that two rate cuts are expected in 2025, down from four expected in September, leading the market to label this rate cut as a 'hawkish cut.' Following the announcement of the rate cut, U.S. Treasury yields and the dollar surged while U.S. stocks and gold plummeted, putting some pressure on commodity prices.
With the Fed's interest rate decision finalized, a series of significant meetings and economic data have been released this month. This also means that macroeconomic news is gradually having less impact on the steel market, and the market will gradually return to fundamentals.
From the demand side, we have now entered a traditional 'off-season' for demand; however, market transaction volumes remain resilient. According to a survey by Lange Steel Network, as of December 18th, the national average transaction volume for construction materials this month was 143,300 tons, roughly on par with November's monthly average. Recently, some steel traders in Beijing have also indicated that this winter has been relatively warm; many large projects are still under construction in Beijing and surrounding areas. Overall market demand is not as poor as expected, and recent shipment volumes have remained relatively good.
According to relevant media reports, regions such as Guangdong and Guangxi are accelerating major project construction to seize opportunities during this 'golden period' of construction as they strive for a strong finish in Q4. This has provided some support for recent market demand. However, it is now mid-December; with the approach of the Lunar New Year and gradually falling temperatures, market demand is also expected to decline accordingly.
Since mid-November, there has been a noticeable increase in news about steel mills halting production for maintenance; production levels are on a downward trend. According to Lange Steel Network's survey on November 29th, one blast furnace at Ningxia Steel with a capacity of 1580m3 has halted production for maintenance with no set date for resumption; Baosteel's Wuhan Iron & Steel Co., Ltd. will conduct annual maintenance on its #5 blast furnace (3200m3) from November 21st to December 25th for 35 days which is expected to affect daily pig iron output by about 780 tons; Lian Steel's No.8 blast furnace will undergo maintenance starting December 16th for 30 days with an estimated reduction of over 100 thousand tons; currently several steel mills in Shanxi are reducing production affecting output by about 45 thousand tons per day. Additionally, most steel mills in Tangshan are still offline producing only around 3000 tons per day.
Currently, blast furnace operating rates continue to decline. According to monitoring data from Lange Steel Cloud Business Platform on December 18th, major steel enterprises nationwide had an operating rate of 75.2%, which is a cumulative decrease of 1.1 percentage points over four weeks and down by 1.6 percentage points compared to last year at this time. From these data and survey results it can be seen that overall production enthusiasm among steel mills has decreased somewhat with expectations of declining output going forward.
As production continues to decline while demand remains relatively resilient recently social inventory levels of steel have continued to drop. On December 18th Lange Steel Network released its latest social inventory data showing that social inventory across key cities was at 6.767 million tons which is a decrease of154 thousand tons from the previous week representing a drop of2.23%. This level marks the lowest point since2020 providing some support for steel prices.
However recently raw material performance has been relatively weak with significant declines in main contracts for coking coal even strong iron ore main contract prices have shown signs of reversal as well.Raw material spot prices have also seen declines according to monitoring data from Lange Steel Cloud Business Platform showing that on December9th fourth round price reductions for coke were fully implemented totaling200 yuan/ton or11% drop; scrap steel prices fell130 yuan/ton within less than one month representing5% drop; iron ore prices dropped25 yuan/ton within less than10 days.The rapid retreating raw material prices may exert certain negative feedback effects on steel prices.
In summary currently overall supply-demand conditions in the market remain relatively good with inventories staying low; however overall market expectations have weakened combined with sharp declines in raw material prices along with hawkish statements from this Federal Reserve meeting leading to declines in steel prices.Short term outlook suggests potential weakness in markets going forward attention should be paid towards how various government departments implement meeting requirements along with whether there will be any interest rate cuts or reserve requirement ratio adjustments by central banks.
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