In March, domestic rebar prices were hit by negative news such as property market regulations and high inventory levels, leading to a steady decline that pushed prices below the 3800 yuan mark. According to spot market reports, current operating rates at construction sites are low, demand is sluggish, and companies are struggling to move their stock before the end of the year. With continuous steel mill deliveries, inventory piles up, and falling prices have led to visible losses for businesses. As a result, many traders are becoming increasingly anxious, expecting the market to remain weak in the near future.
Recent property market regulations, including the "New National Five" policies, have caused significant turbulence in real estate and capital markets. The second-hand housing market has remained hot, but prior to the introduction of these regional rules, market signals were unstable, and the outlook remained uncertain. The New Deal has had a more pronounced impact on market expectations, and it's possible that even stricter regulations could be introduced in the future.
According to officials from the Ministry of Housing and Urban-Rural Development, local governments may introduce new policies by the end of March this year. These regulations will cover key areas such as annual price control targets and residential land plans. Additionally, cities above the prefecture level are required to include qualifying groups in housing security measures, which should also be reflected in the policy framework.
The implementation of the New Deal triggered a sharp drop in real estate stocks. After the announcement, the stock market fell sharply, likely due to overinterpretation or partial panic. In any case, the current stringent regulatory environment continues to suppress the steel market.
China’s crude steel production has reached record highs, with supply pressures remaining strong. This year, China has broken its own records for crude steel output. According to the National Bureau of Statistics, the country produced 125.542 million tons of crude steel in the first two months of the year, a 10.6% increase compared to the same period last year. The average daily crude steel output was 2,212,300 tons, the highest ever recorded for this time of year.
Data shows that the average daily crude steel production increased significantly from 1,589,900 tons in December of the previous year to 2,126,300 tons in the first two months of this year—a 14.32% rise. This surge has worsened the oversupply problem in the market. Over the years, the beginning of the year has seen a notable increase in crude steel output compared to the end of the previous year. Industry insiders suggest that some companies may have underreported production at the end of the previous year to make up for it at the start of the new year, due to pressure from energy-saving measures, emissions reduction, and tax obligations.
February’s steel production figures are especially important given the Chinese New Year holiday. The increase in production suggests that steel mills are trying to take advantage of higher steel prices to sell more products. However, this rise in production has added to the current supply pressure, causing steel prices to weaken after a brief rebound.
Steel inventories continue to grow, and the recent rebound in steel prices has been limited. As of March 8, 2013, the total social inventory of five major steel products across major markets reached 22,316,000 tons, rising for 12 consecutive weeks. Compared to the same period in 2012, the year-on-year increase was 3.652 million tons. In terms of subcategories, rebar inventory in major cities across China was 10.7979 million tons, up 2.4096 million tons from the same period last year—an increase of 28.73%. The year-on-year growth rate continues to expand, reaching a record high.
Although the growth rate of early inventories in Central, Northwest, and East China has slowed down, the overall upward trend remains unchanged. Meanwhile, North China continues to see rapid inventory increases. Despite the gradual resumption of domestic construction site procurement and improved transactions in some urban markets, the large inventory pressure still exerts strong downward pressure on prices.
Looking at the consumption of steel inventories over the past three years, the average time for steel product inventories to be absorbed is about nine months. However, in recent years, steel inventories have continued to rise, and the absorption rate has gradually slowed. Based on the current rate of crude steel production, steel market inventories are expected to grow further, which is not favorable for a sustained price recovery.
Regarding environmental protection concerns, from March 13 to March 28, the environmental protection headquarters will conduct thorough inspections of 128 key polluting enterprises in Tangshan. The market believes this initiative serves as a warning to high-consumption and high-pollution enterprises to reduce or halt production. For a weak market, this could act as a catalyst for a price rebound. Historically, events related to steel mill operations have often led to unexpected declines in the steel market. For example, in 2010, the Ministry of Industry and Information Technology announced the elimination of steel mills producing less than one million tons annually, which was expected to reduce supply and stabilize prices. Similarly, in 2011, the spring drought affected hydropower, leading to tight electricity supply and limited production for some steel companies, which was later amplified in the market as a reason for price stabilization.
It remains to be seen whether the 128 key pollution-disposal enterprises in Tangshan will undergo a thorough inspection in 2013 and potentially trigger a market rebound.
Based on the above analysis, the current high crude steel production and massive steel inventories have worsened the oversupply issue, which is expected to weigh on long-term steel prices. However, the RB1310 contract has declined by over 7%, nearing 3700. It is not advisable to chase the price at this point. After a potential rally, consider short selling near 3950 with a stop-loss at 4000.
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