Macro expectations are expected to improve in December, providing support for steel costs.
Since November, Steel market It is showing a trend of initially weakening and then stabilizing. As of November 21, Rebar 、 Hot rolling The prices of the main contract for coil steel have fallen by 49 yuan/ton and 38 yuan/ton respectively compared to the end of October, representing declines of 1.58% and 1.15%, respectively. As for December... Steel prices As for the trend, the author believes that there is limited room for further declines, and with the improvement in macroeconomic expectations, a temporary rebound cannot be ruled out.
Recent Analysis of the Operating Logic in the Steel Market
After a series of major macroeconomic events that had been closely watched by the market came to fruition at the end of October, the steel market in November was primarily driven by fundamental factors—including high supply, low demand, and negative feedback loops within the industrial chain triggered by steel mills’ losses.
Moreover, the central bank’s decision in late November to keep the LPR (Loan Prime Rate) unchanged, coupled with the U.S. nonfarm payroll data for September coming in above expectations, further intensified market risk aversion, triggering a temporary pullback in the stock market and putting downward pressure on the steel market.
Judging from the current economic data, there is also little need for further intensification of macro policies in December, and the trend of weak actual demand is likely to persist. However, going forward, I believe it’s even more important to pay close attention to market expectations for next year and whether there are any unexpected factors in the underlying fundamentals.
There is a possibility that macroeconomic expectations could improve again in December.
2026 marks the beginning of the 15th Five-Year Plan, and the market still has certain expectations for further policy efforts. In December, China will host two important meetings—the fourth-quarter meeting of the Political Bureau of the CPC Central Committee and the Central Economic Work Conference—both of which are expected to deliver relatively positive statements on boosting domestic demand, combating “involution,” and stabilizing the real estate sector.
Last week, the market buzzed with rumors that real estate policies would be eased once again. Possible policy measures include providing mortgage subsidies, increasing the deduction ratio for home loans in income tax, and reducing various taxes and fees. These rumors briefly spurred a rebound in real estate stocks. Overseas markets have also shown some shift in expectations: the president of the Federal Reserve Bank of New York indicated that the Fed still has room for further interest-rate cuts, causing the probability of a rate cut in December to quickly rise back to 70%. Therefore, it cannot be ruled out that macroeconomic expectations could strengthen again in December.
In addition, during this round of decline in steel futures prices, spot steel prices have remained relatively stable. The basis between the main rebar contract and the spot price has now widened to 163 yuan per ton. Under these circumstances, if macroeconomic expectations strengthen, the upward momentum on futures prices will be even more pronounced.
The industry's actual situation may be better than market expectations.
From an industry perspective, the current situation still follows a negative-feedback loop characterized by steel mills cutting production and raw material prices falling. However, last week (November 17–21), the average daily blast furnace output of 247 steel plants nationwide... Iron water production The decline was only 6,000 tons, significantly lower than market expectations. This was mainly due to two factors: First, exports have remained at relatively high levels, and the volume of steel shipped out of ports continued to show a rebound in November. Judging from the price spread between domestic and international hot-rolled coil prices, there’s little doubt that high steel exports can persist until the end of the year. Second, despite a month-on-month increase of 150,000 tons in the output of the five major steel varieties last week, steel inventories still fell by 4.4 million tons. This suggests that domestic demand during the off-season may perform better than market expectations. Moreover, based on past historical experience, there are still at least four to five weeks remaining before the Spring Festival, during which steel inventories typically accumulate.
Considering the current industry environment and market conditions for 2026, Construction steel Expectations for demand are generally pessimistic, and traders’ willingness to build up winter inventories is overall weak. However, given the high basis on the steel futures market for construction steel, it’s still expected that a considerable proportion of traders will choose to stockpile winter inventories via the futures market. Although the logic behind winter stocking of hot-rolled coil is not as strong as that for construction steel, the fourth quarter typically marks the traditional peak season for hot-rolled coil demand. The price spread of around 200 yuan per ton between hot-rolled coil and threaded steel, coupled with the low discount—just 10 yuan per ton—between futures prices and spot prices, clearly reflects this industry situation.
The cost-side support remains relatively strong.
If the two industry-positive factors mentioned earlier can be sustained, daily molten iron production will likely remain above 2.3 million tons by the end of this year. This means that, against the backdrop of steel mills operating at a loss, the cost support for steel products will become stronger.
From the perspective of the fundamentals of the raw materials themselves, the Simandou iron ore mine went into operation on November 11, and the increase in supply is already well-known. What’s even more critical going forward is the pace of production ramp-up. The author believes that... Iron ore During the time period corresponding to the 2605 contract, the increase in supply will be relatively limited. Moreover, the first quarter of each year typically marks the lowest point in mine shipments for the entire year and the resumption of steel plant production following the Spring Festival. Considering the port-of-arrival cost of around $90 per ton (747 yuan per ton) for the Simandou iron ore, and given that the spot price is trading at a discount of 70 yuan per ton compared to the 05 contract, it’s unlikely that the 05 iron ore contract will break through 734 yuan per ton.
In recent weeks, coking coal prices have fallen significantly. However, the author has observed that during this price decline, total coking coal inventories have not accumulated; on the contrary, they have shown a slight decrease for two consecutive weeks. As of the week ending November 21 (November 17–21), total coking coal inventories—comprising stocks at steel mills, coking plants, ports, and coal mines—stood at 23.1269 million tons, down 1.449 million tons from early November. In addition, daily coal consumption by power plants has also been steadily recovering recently. Power coal Prices still have some support, but from a relative-price perspective, they don't offer much support either. Coking coal price A significant drop has occurred. Therefore, coking coal finds some support around the low-quality warehouse receipt cost of 1,050 to 1,100 yuan per ton.
Meanwhile, Furnace charge Winter stockpiling and restocking also provide some support to prices. Currently, iron ore stocks have only been replenished for two weeks, and the absolute volume remains at historically low levels for this time of year. Although coking coal has undergone a round of phased restocking and its inventory is at a nearly three-year high, there is still some room for further restocking.
Overall, there is a possibility that macroeconomic expectations could improve again in December, and the underlying supply-and-demand fundamentals may not be as poor as the market currently anticipates. Moreover, with declining raw material supplies and steel mills replenishing their inventories, cost support is relatively strong. Therefore, the author expects the price of the May contract for hot-rolled coil to hover around 3,200 yuan per ton. Rebar prices Around the range of 3,050 to 3,100 yuan per ton, there is limited room for further decline. Whether the trend can subsequently reverse and move upward will depend on whether bullish driving factors can materialize.
