Experts say city—December 8

My Steel: On the supply side, last Friday, the supply of the five major steel products reached 8.2895 million tons, down 2.676 million tons from the previous week, representing a decline of 3.1%. The reduction in production last week was mainly driven by long products, as demand for construction materials in northern regions weakened significantly, prompting some steel mills to temporarily halt production in order to ease supply-side pressure. Last Friday, the total inventory of the five major steel products stood at 13.6559 million tons, down 3.522 million tons from the previous week, or a decrease of 2.5%. The total inventory of the five major steel products continued to decline last week, with the rate of decline slightly higher than the previous week. Looking at the inventory structure, both mill inventories and social inventories continued to fall compared to the previous week, largely due to the substantial drop in production. On the demand side, last week, the apparent weekly consumption of the five major steel products totaled 8.6417 million tons, down 2.7% from the previous week. Among these, construction material consumption fell by 5.8%, and plate consumption declined by 0.9%. As the off-season has arrived and downstream sectors are primarily focused on collecting payments and recovering receivables at year-end, construction activity remains limited, putting downward pressure on long product consumption and causing the decline in long product demand to exceed that of plate consumption last week. Overall, last week saw a simultaneous decline in both supply and demand for the five major steel products, with total inventories continuing to fall. The underlying fundamentals remain neutral with a slight bias toward supply-side easing. On the supply side, given that current spot profits for steel are in an expansionary phase, steel inventories are likely to continue declining in the short term, thus limiting the momentum for a further sharp drop in production in the near future. On the demand side, as the off-season deepens, construction material consumption will continue to weaken. Similarly, plate consumption is also facing seasonal weakening pressures. In terms of inventory, given the expectation that both supply and demand will continue to decline, inventories are likely to remain in a destocking mode in the short term, though the pace of decline may slow somewhat. Overall, as the off-season becomes more pronounced in the coming period, the weak fundamentals of the steel market are unlikely to change significantly. Entering December, as macroeconomic drivers gradually strengthen, the primary logic of the steel market is likely to shift toward macroeconomic factors. Given that the current contradictions between supply and demand are not particularly pronounced, steel prices are likely to remain relatively strong in the short term, driven by macroeconomic factors.

Steel Home: Last week, domestic steel prices continued to rise slightly, with construction steel showing a slightly stronger performance than sheet steel. From the perspective of supply and demand, the domestic steel market remains broadly balanced, though there are structural differences among product categories. Specifically, steel mills are shifting their production structure toward reducing output of construction steel and increasingly focusing on producing industrial steels, including various types of sheet steel. This shift is reflected in inventory trends: construction steel inventories have continued to decline, with the pace of decline recently accelerating; while inventories of various sheet steels, although not rising further, have remained at relatively high levels—significantly higher than those observed during the same period in recent years. Currently, the market is in the traditional off-season for consumption, and trading activity remains weak. Most traders are primarily focused on reducing inventories. However, recently, the number of steel mills suspending production for maintenance has increased, leading to a slight reduction in market supply. Overall, supply-demand pressures remain moderate. It is expected that domestic steel prices will continue to fluctuate this week, generally trending upward.

Lange: Currently, the global economy is once again facing significant challenges, with an increasing number of economic and trade restrictions and growing confrontational tensions. However, China’s economic structural adjustment continues to advance steadily. The transition from old to new growth drivers is accompanied by painful adjustments, and the contraction in market-driven demand remains prominent, putting continued downward pressure on the economy. To ensure a strong start to the 15th Five-Year Plan, we must further strengthen counter-cyclical macroeconomic policy adjustments, significantly increase government investment in public goods and public services, effectively boost corporate order volumes, and promptly reverse the current trend of shrinking market-driven demand. Looking at the black commodity futures markets, black commodities weakened again on Friday, mainly due to sharp declines in coking coal and coke prices—both main contracts fell by 3.15% and 2.31%, respectively, during the day. Taking the rebar main contract 05 as an example, it closed at 3,157 yuan, down 4 points for the day, but up 40 points from last Friday’s closing price. The weekly settlement price was 3,160 yuan, up 47 points. The latest open interest stood at 1.475 million contracts, an increase of 548,000 contracts from last Friday’s level, indicating a rapid buildup in positions held by major players. Currently, the 05 contract faces resistance around the 3,180-yuan mark on the daily chart; it has failed to break upward for two consecutive days. However, the weekly chart still shows relatively positive performance, and after the daily adjustment, there remains potential for the weekly chart to continue its upward trajectory. This week, we should continue to pay close attention to the resistance levels between 3,180 and 3,200 yuan, with support levels hovering around 3,130 yuan below. In terms of the spot steel market, on the supply side, due to profit-and-loss impacts across different product categories, steel mills have continued to reduce their capacity release, leading to a slight decline in molten iron production and a drop in output of specific steel products. On the demand side, as the winter effect intensifies, terminal demand is experiencing seasonal fluctuations, with construction materials showing weaker performance while sheet products remain resilient. On the cost side, although iron ore prices have slightly declined, scrap steel prices have remained stable with a tendency toward strengthening, and coking coal prices have fallen modestly, thus weakening the support for production costs. Therefore, according to the Lange Steel Research Center, influenced by expectations from the Economic Work Conference, the characteristics of a weak demand season, the ongoing slowdown in supply release, the resilience of sheet products amid weak market transactions, and the weakening cost support, the domestic steel market this week is likely to experience volatile yet strengthening trends.

Tang and Song: This week, December falls within the traditional off-season for demand, and end-user demand continues to weaken further under the influence of seasonal factors. A series of factors—including consecutive declines in real estate investment, infrastructure investment at historically low levels, and tightening liquidity conditions at year-end—have all contributed to a contraction in market demand. Although steel exports declined slightly month-on-month, robust demand from emerging overseas markets remains strong, suggesting that export volumes are likely to stay relatively high, providing some support to overall demand and partially easing pressure on domestic demand. On the supply side, the recent Central Environmental Protection Inspection reported a number of issues in Tangshan’s steel industry, including unauthorized expansion of production capacity and prominent illegal discharge of pollutants. According to investigations, these issues have not yet significantly impacted production. Moreover, steel prices have risen slightly recently, reducing the extent of losses for steel companies, though they still remain in a state of slight loss. Against this backdrop, blast furnace operating rates have remained generally stable. It is expected that supply will continue to stay steady this week, with little likelihood of significant fluctuations. In terms of inventory, amid weak but stable supply and demand, inventories continue to be slowly digested. This week, inventories are forecast to keep declining modestly. At the macro level, internationally, the Federal Reserve will hold its interest-rate meeting on December 9-10; current market expectations point to an 87% probability of a rate cut in December. Domestically, this week will see an important economic conference, with overall macroeconomic expectations remaining positive. These macroeconomic factors collectively provide upward support to the market. Currently, the steel market is characterized by a complex interplay of multiple factors: weak supply and demand, diverging cost supports, and the impact of policy expectations. From the supply side, supply remains relatively stable, though substantial increases or decreases are unlikely. On the demand side, seasonal factors and the broader macroeconomic environment are weighing on overall demand, which is showing signs of contraction. However, export demand is playing a role in partially offsetting the decline in domestic demand. As for costs, raw material prices have eased somewhat—especially after the Ministry of Industry and Information Technology reiterated late Friday its commitment to peaking carbon emissions and achieving carbon neutrality, sparking expectations of further carbon reduction. The sharp decline in coking coal prices has significantly weakened the cost support for steel. Considering that the December economic work conference is scheduled to take place this week, market expectations regarding policy are strong. Steel prices may continue to rise in the near term. However, in the medium term, the relationship between policy expectations and the steel market is relatively limited, and the impact on industrial recovery is not yet evident. Once expectations become overextended, steel prices could face a sustained downward trend. Despite the generally favorable macroeconomic environment and improved market sentiment compared to earlier periods, market participants remain cautious. This cautious sentiment exerts both upward momentum and downward resistance on steel prices. Overall, the probability remains relatively high that steel prices will continue to fluctuate around their current high levels. For the rebar futures contract (RB05), watch for resistance around 3,210 yuan per ton and support around 3,120 yuan per ton.

Han Weidong, Youfa Group: Over the weekend, I had the opportunity to exchange ideas with a delegation led by Zhu Junhong, Chairman of Shanghai Steel Union, who was visiting Youfa Group. Chairman Zhu shared two key insights: First, market volatility next year will remain relatively low, and China’s economy is entering a “transformation era.” Second, in the future, steel mills will inevitably shift their inventory strategy—from holding stock at the distributors’ warehouses to pre-positioning inventory directly in the market. According to research reports from the Shanghai Steel Union team, next year’s lowest steel prices are expected to occur in the first half of the year. Youfa Group has already refrained from winter stockpiling for three consecutive years, and this year, I still recommend against it. The biggest concern is that demand has been declining sharply year-on-year for four consecutive months. If this trend continues into the first half of next year, the cumulative effect could be significant, potentially delivering a substantial shock to a market that has become accustomed to narrow, volatile fluctuations. This outdated business model and mindset of winter stockpiling may well fade from our collective view in many years to come. “I’m leaving as gently as I came.” My tenure as a consultant at Youfa Group is coming to an end, and a new chapter—a multi-phase life—is about to begin. I’d like to express my heartfelt gratitude to the Youfa family for the warmth and support you’ve given me over the past thirteen years. Wishing Youfa Group continued success and prosperity!