The short-term impact of positive macroeconomic factors is weakening, and end-user demand is facing downward pressure. If steel mills maintain their current supply levels, Rebar the supply-demand contradiction will gradually increase, and profits may be difficult to sustain. Iron ore fundamentals there is an expectation of marginal weakening, the oversupply pattern of coking coal continues, and cost-side support weakens. Rebar may fluctuate weakly in the short term.
Recently, there have been continuous positive macroeconomic factors. Last week, high-level talks between China and the US on trade achieved substantial progress, and both sides agreed to significantly reduce bilateral tariffs. This week, the central bank lowered the one-year and five-year above loan prime rate (LPR) from 3.1% and 3.6% to 3% and 3.5% respectively. Macroeconomic sentiment has clearly warmed, but the boost to black commodity prices is limited, and market drivers are returning to fundamentals. As the downstream sector is about to enter the off-season, rebar has returned to weak operation under the influence of falling demand expectations.
Demand is expected to decline
Last week, the apparent consumption of rebar was 2.6029 million tons, a month-on-month increase of 463,900 tons, showing a certain resilience in demand, but it is still lower year-on-year, and the overall downward trend is difficult to change. According to data from the National Bureau of Statistics, the growth rates of real estate, infrastructure, and manufacturing investment in April were -11.53%, 5.8%, and 8.23% respectively, all showing a certain degree of decline. In addition, the Sino-US tariff dispute has eased, but the basic tariff of 10% still exists, and the tariff policy faces great uncertainty after 90 days. It remains to be seen whether orders can continue to warm up after the end of the rush to export. At the same time, as the south enters the rainy season, the off-season for end-user demand is approaching. Recently, the daily transaction volume of building materials nationwide has fallen back to around 100,000 tons, coupled with the slow improvement of funds at construction sites (according to research by Bainian Construction, the funding availability rate at sample construction sites this week was 58.89%, down 0.21 percentage points month-on-month), there is an expectation of a decline in future demand.
Supply remains at a recent high
This year, most steel mills have practiced self-discipline in production control, and steel output has not increased significantly due to profit drivers. Last week, rebar output was 2.2653 million tons, a month-on-month increase of 30,000 tons. Although expectations of administrative production restrictions have always existed, due to economic pressure and weak market conditions, it is expected that short-term concentrated adjustments to crude steel output will be difficult to achieve. According to calculations, the immediate profit of long-process steel is maintained at around 100 yuan/ton, and enterprises have insufficient motivation to reduce production. From the maintenance plan, output will not decrease significantly for the time being. At the current supply and demand level, the contradiction in the fundamentals of rebar is not prominent. Last week, the total inventory of rebar was 6.1987 million tons, a month-on-month decrease of 337,600 tons. If demand weakens later, the supply-demand contradiction may gradually increase.
Costs continue to decline
Recently, the daily average pig iron output was 2.4477 million tons, which is at a high level for the same period in previous years. However, under the background of "making up for price with volume", the oversupply pattern of coking coal continues, and high pig iron output cannot positively drive coal prices. There is also no expectation of a significant reduction in Mongolian coal. Under the influence of high supply, high inventory, and weak expectations, coking coal may remain weak for a long time, leading to coke price reductions. Iron ore prices have become rebar prices core support. Under the current pig iron output, iron ore supply and demand remain balanced, and inventories are stable. However, it has become a market consensus that pig iron output has peaked. Last week, the daily average pig iron output decreased by 8,700 tons month-on-month. At the same time, in June, iron ore shipments will enter the end-of-quarter rush period, and shipments from major mines are expected to maintain a steady upward trend. The iron ore supply and demand pattern also has weakening expectations.
Summary
In summary, in the short term, the impact of positive macroeconomic factors is weakening, and end-user demand is facing downward pressure during the off-season. If steel mills maintain their current supply levels, the supply-demand contradiction of rebar will gradually increase, and profits may be difficult to sustain. There are marginal weakening expectations for iron ore fundamentals, the oversupply pattern of coking coal continues, and cost-side support weakens. Rebar may fluctuate weakly in the short term. (Author's unit: Funeng Futures)
