Mysteel.com: At the beginning of last week, driven by favorable policies such as Guangzhou real estate purchase and storage and marginal improvement in major economic data in October, the price of black series started to rise and continued to rise. The driving force mainly came from the following two aspects:

First, the resilience of demand for construction projects has emerged, providing off-season support for steel. Last week, Mysteel's small sample rebar apparent demand reached 2.342 million tons, an increase of 33,600 tons from the previous month, rising for two consecutive weeks;

Second, the high level of molten iron production provides strong support for the cost side. Last week, the average daily molten iron production of Mysteel's 247 steel mills was 2.358 million tons, a slight decline of 1,400 tons from the previous month.

Overall, last week's steel prices were in line with our previous weekly forecast: a weak rebound. As of November 22, the spot prices of hot-rolled coil and rebar in Shanghai rose by 30-50 yuan/ton compared with last Friday. But how long can the weak rebound in steel prices last?

Looking ahead to this week, we expect the price center of the black series to remain stable, with narrow fluctuations as the main trend, mainly based on the following judgments:

First, the supply side remains stable. The current average daily molten iron output of blast furnaces remains at a relatively high level of 2.35 million tons. At the same time, the absolute level of inventory in steel mills is lower than the same period last year. In addition, market feedback shows that there is still 50-100 yuan/ton of spot and actual production profit margin for building materials, so the possibility of supply side shrinkage is low. In addition, as raw material prices hit a new low, steel mills in some regions have already started to replenish inventory at low prices, further supporting the stability of the supply side.

Secondly, short-term demand remains resilient. Judging from last week's performance, after the environmental protection restrictions were lifted in some northern regions, the demand for rush work was released before the weather turned cold. At the same time, domestic manufacturing demand and exports remained stable for the time being. Although overall demand is expected to weaken seasonally, the fundamental contradictions of the steel market are not prominent in the short term, and the resilience of the demand side is still difficult to disprove.

Looking ahead to December, steel production is expected to remain at a similar level to November: the average daily hot metal output is expected to fluctuate between 2.3 million and 2.35 million tons, which means that the overall supply level will be higher than the same period last year. Therefore, the core of the December market lies in whether the oversupply pressure will exceed expectations, especially whether the off-season demand for steel (including actual construction volume and winter storage demand) can effectively absorb these supplies. For the steel demand side, it is necessary to pay attention to:

1. Off-season demand turning point: Looking back over the past five years, rebar demand usually begins to decline significantly around the 8th week before the Spring Festival. It is now approaching the 10th week before the Spring Festival, and market expectations for weakening demand are increasing.

2. Increased financial pressure: As the end of the year approaches, corporate settlements generally put pressure on the steel capital chain. Market research shows that in addition to the cold weather affecting construction, tight funds also limit the enthusiasm for large-scale rush work: only some completed projects can maintain their rush work demand, and the overall demand support is insufficient.

3. Weaker demand for building materials in the south: The northern region is about to enter a shutdown period, and demand for the construction industry in the south has also been declining for several weeks. With supply gradually higher than the same period last year, the pressure on the accumulation of rebar stocks in the later period will further increase, thereby increasing the risk of price declines.

4. Resilience of hot-rolled coil demand: Although seasonal demand declines usually appear around 7-8 weeks before the Spring Festival, judging from the manufacturing industry's order situation and low-price exports at the end of the year, driven by home appliance and automobile subsidies and equipment renewal policies, the decline in hot-rolled coil demand may be slower than the same period last year, and the downward pressure on prices in the short term is relatively limited.

Although rebar prices are facing downward pressure, we still maintain our judgment that the bottom of rebar prices is around 3,250 yuan/ton (based on the calculation of iron ore price of US$95 and coke price reduction, the production cost of rebar in steel mills in East China is about 3,240-3,280 yuan/ton; the current production cost of electric furnaces in East China is around 3,200-3,250 yuan/ton). Rebar futures prices have also fluctuated around this level recently: the lowest point of the main rebar contract since October was 3,226 yuan/ton.

Mysteel.com