The steel market has not yet bottomed out; sentiment suppresses increased volatility at the end of the month.

The steel market continued to decline within a narrow range today. By the close, the main rebar October contract settled at 3111, down 15 points from the previous trading day; the main hot-rolled coil October contract settled at 3349, down 31 points; the main coke contract settled at 1669.5, down 48.5 points; the main coking coal contract settled at 1154, down 46.5 points; the main iron ore contract settled at 775.5, down 5 points. As of 16:00 on the 27th, in finished products, the average spot price of rebar on Lange Steel Network was 3290 yuan, down 5 yuan from the previous trading day; the average price of hot-rolled coil was 3437 yuan, down 7 yuan from the previous trading day. In raw materials, the price of imported PB powder at Jingtang Port was 790 yuan, up 5 yuan from the previous trading day; the price of Tangshan quasi-first-grade metallurgical coke was 1490 yuan, unchanged from the previous trading day; the ex-factory price of steel billets from leading steel mills in Qian'an, Tangshan was 3030 yuan, unchanged from the previous trading day.

Market Analysis

The steel market trend today was average, with prices in many regions continuing to decline slightly by 10-20 yuan. The decline in rebar was relatively small, but regional price differences showed a "higher in the north and east, lower in the south and west" pattern. For example, rebar prices in Guangzhou and Chengdu were significantly lower than those in Hangzhou and Beijing, with Guangzhou rebar prices respectively 180 yuan and 170 yuan lower than Hangzhou and Beijing. From the transaction perspective, shipments in many areas were poor, and as the month-end approaches, there is an increase in low-price shipments to cash out.

Although the market maintained a downward trend today, there were also intraday rises. In the afternoon, due to a rapid correction led by the stock market, market sentiment cooled down, and black commodities continued to decline. From some indications, the stock market once reached a nearly 10-year high, with some stocks being overvalued and overheated. The market has begun to issue warnings about the overheated market, and it is possible that as the month-end approaches, an appropriate pullback adjustment will occur to cool down the market, allowing the subsequent market trend to be more sustainable.

Today, the National Bureau of Statistics released data showing that profits of industrial enterprises above designated size in July fell by 1.5% year-on-year, with total profits for the first seven months reaching 4,020.35 billion yuan, down 1.7% year-on-year. This indicates that industrial enterprise profits are still not good, with July data continuing a three-month decline. However, on a month-on-month basis, the decline narrowed by 2.8 percentage points compared to June and has narrowed for two consecutive months. In specific sectors, high-tech manufacturing profits turned from a 0.9% decline in June to an 18.9% increase. Steel industry profits rebounded rapidly; from January to July, the total profits of ferrous metal smelting and rolling processing reached 64.36 billion yuan, a year-on-year increase of 5175.4%. However, the high growth in steel profits mainly benefited from a very low base in the same period last year and effective cost control, with significant differences among regions and enterprises. Currently, most electric furnace enterprises are operating at a loss, and production has also declined. After the eighth round of coke price increases, steel profit margins have been further compressed due to the phased decline in steel prices. Therefore, facing the dual pressure of rising raw material costs and weak downstream demand, profitability is not optimistic.

Currently, the market's biggest concern remains the lack of demand highlights. According to steel traders' shipment conditions, demand has significantly declined compared to last year. However, part of this is due to seasonal off-season factors, such as some regions implementing staggered work hours in the early morning and evening due to excessively hot weather. According to Li Ying, spokesperson for the Ministry of Transport, at a press conference on Wednesday, since the start of the flood season, North China, East China, Northeast China, and other areas have experienced continuous heavy rainfall, causing floods and geological disasters. So far, highway transportation infrastructure in 23 provinces (regions, cities) nationwide has been affected by floods to varying degrees, with preliminary statistics showing cumulative damage exceeding 16 billion yuan. Currently, together with the Ministry of Finance, 540 million yuan in emergency highway repair subsidies have been allocated, and various repair works are progressing effectively and orderly. Apart from railways, highways are a relatively high steel demand sector in infrastructure, requiring large amounts of rebar, steel strands, and section steel for bridge piers, decks, beams, and guardrails. It is expected that steel demand will recover in subsequent highway repair projects. Therefore, steel market demand in September is expected to be better than in August.

Market Outlook

At present, the steel market remains weak with no solid bottoming signals. If the stock market undergoes a correction, it will have a certain negative impact on the steel market rhythm, mainly reflected in funds and sentiment. Additionally, the rhythm of black commodities is inconsistent; hot-rolled coil has not yet fully adjusted compared to rebar, and the "double coke" has also not fully adjusted. The impact of mining accidents and production cuts has already been priced in, and further speculation is ineffective. Although prices are close to the bottom, the bottom is not firm. From a timing perspective, as the month-end approaches, there will be capital recovery and sales pressure, continuing to "wear down" the market, but the downside space is very limited, so there is no need to worry about a sharp decline.

From the market perspective, black commodities closed lower overall, with coking coal and coke seeing expanded declines compared to the night session, dropping nearly 4% and 3% respectively, while other varieties fell less than 1%. The main rebar October contract settled at 3111, down 15 points, with open interest at 1.23 million lots, down 73,000 lots. The difference with the 2601 contract's open interest is only 62,000 lots. It is expected that the January contract will have higher open interest than the October contract tomorrow, but the trading volume difference is 370,000 lots, so more time is needed. Regarding the October contract, intraday it once fell below the 3100 mark to 3097 but quickly recovered and reached an intraday high of 3128, then narrowed to close at 3111. There is still support around 3100; the next focus is on the battle near this level. If it breaks down effectively, the lower support reference is in the 3060-3080 range.