Rebar There is an expectation of fundamental improvement, with an inventory turning point likely to appear in mid to late September. There is currently no obvious negative feedback pressure on the raw material side, and it is expected that Rebar prices have limited downside space.
Since the second half of the year, rebar prices have fluctuated more intensely, showing an "inverted V" shaped trend. In July, driven by expectations of "anti-involution" and rising raw material costs, prices surged sharply, returning to the high point at the beginning of the year. In August, as market sentiment cooled and off-season inventory continued to accumulate, prices declined again. Currently, the main rebar futures contract 2601 is fluctuating near 3100 yuan/ton, seeking a bottom, with a new round of rebound expected in the medium term.
Seasonal inventory pressure may gradually ease
Since August, rebar inventory has continued to accumulate. The impact of phased production control in North China mainly affects hot-rolled coil and other plate products, with overall rebar output remaining stable. However, some downstream construction sites have suspended work, leading to insufficient terminal restocking and a temporary supply-demand mismatch, causing continuous accumulation of rebar inventory and suppressing price trends. Mysteel data shows that as of the week ending September 4, rebar production slightly decreased by 18,800 tons to 2.1868 million tons, up 22% year-on-year. This is mainly due to the low production base last year caused by the new national rebar standards, active production cuts by steel mills, and continuous market sell-offs. Compared to other years, rebar production remains at a relatively low level. On the demand side, weekly apparent demand fell by 21,400 tons week-on-week to 2.0207 million tons, down 19% year-on-year, below historical levels for the same period, related to some downstream construction suspensions and delayed peak season restocking. Therefore, weekly total rebar inventory continued to accumulate, increasing by 166,100 tons week-on-week to 6.4 million tons, with growth similar to the previous week. Social inventory increased by 148,900 tons with a slowing growth rate and a 15% year-on-year increase; mill inventory turned from a decrease to an increase, rising by 17,200 tons week-on-week with a 17% year-on-year increase.
Off-season rebar inventory accumulation was concentrated from early July to mid-August. Afterwards, as the peak season approached, terminal restocking increased, supporting demand recovery and causing inventory to gradually decline. This year, off-season inventory accumulation was delayed, and with some construction suspensions in late August and generally low terminal restocking enthusiasm, combined with price declines suppressing speculative demand, inventory continued to accumulate. Recently, as downstream areas in the Beijing-Tianjin-Hebei region gradually resumed work and production, terminal low-price restocking enthusiasm has improved. Additionally, the third quarter special bond issuance supports the advancement and implementation of infrastructure projects during the construction peak season, which temporarily supports rebar restocking improvement week-on-week. It is worth noting that based on the current rebar inventory structure and average seasonal restocking levels in previous years, assuming stable rebar production, an inventory turning point from increase to decrease is expected in mid to late September, with fundamentals showing signs of warming.
Steel mill profits contract temporarily
From the perspective of steel mill profits, this year is overall better than last year. However, recently, with a sharp drop in finished product prices and firm raw material prices, steel mill profits have contracted temporarily. According to Mysteel survey data, as of the end of August, costs for blast furnace producers increased significantly. The average tax-included cost for 51 rebar producers was 3069 yuan/ton, with an average profit of 18 yuan/ton, contracting 178 yuan/ton from the end of July; independent electric arc furnace (EAF) mills had an average loss of 135 yuan/ton, with valley electricity profits at -39 yuan/ton. Recently, rebar prices have continued to decline, causing severe losses for EAF steel, with capacity utilization and operating rates continuing to fall. As of the week ending September 3, Mysteel statistics show that the average operating rate of 87 independent EAF mills nationwide was 73.21%, down 1.88 percentage points from the previous week, up 1.69 percentage points from early August, and up 23.98 percentage points year-on-year; capacity utilization was 55.74%, down 0.8 percentage points week-on-week, down 1.16 percentage points from early August, and up 23.04 percentage points year-on-year.
Overall, blast furnace producers are still profitable and have low enthusiasm for active production cuts. As blast furnace producers in the Beijing-Tianjin-Hebei region gradually resume production, pig iron output will increase week-on-week, with raw material support remaining strong. Against the backdrop of expected improvement in peak season terminal demand, the raw material side is unlikely to form obvious negative feedback pressure in the short term, further boosting prices of rebar and other finished products. Compared to blast furnace production, electric furnace producers are currently suffering significant losses and have low short-term production enthusiasm, providing room for week-on-week improvement in the supply-demand structure of rebar during the peak season.
High warehouse receipts may limit rebound height
Despite expectations of improved supply-demand fundamentals during the peak season, attention should still be paid to the pressure from the continuous rise in rebar warehouse receipts. According to warehouse receipt data, since mid-August, rebar warehouse receipts have exceeded 100,000 tons and continue to increase. As of September 5, rebar warehouse receipts reached 230,000 tons, 60,000 tons more than the same period last year, second only to the highest level of 239,700 tons on April 23 this year. This reflects strong hedging intentions by off-season traders, with inventory shifting to the futures market, bringing some pressure on future delivery, especially on near-month contracts, which may suppress the height of subsequent rebar price rebounds. However, since the market has already traded this logic and current rebar prices have undergone a round of adjustments, the basis has significantly widened and is currently at the upper boundary of basis fluctuations in recent years, short-term hedging intentions on the futures market have weakened.
Market outlook
In summary, off-season rebar inventory accumulation is overall lagging behind previous years, and downstream restocking is also relatively delayed. Based on the current supply-demand structure of rebar, assuming historical average peak season restocking pace and incremental space, the inventory turning point is expected to appear in mid to late September. This means that fundamentals are expected to improve month-on-month in the coming month. Meanwhile, with no obvious negative feedback pressure from the raw material side for the time being, combined with rising expectations of overseas interest rate cuts and remaining domestic policy space, rebar prices have limited downside space and are expected to see a medium-term bottoming rebound. (Author's affiliation: Zhongyuan Futures)
