With the convening of two major economic conferences in China, the focus of macroeconomic work for the coming year has been clarified. The policies introduced intensively since September have started to positively impact the economy, but the upcoming policy vacuum period will lead the rebar market back to being driven by fundamentals. Recently, the core driver has been an off-season demand rebound, but deeper changes in the supply-demand structure still need further observation.
Off-season Demand Rebound
Since October, the average consumption of rebar has gradually declined, showing off-season characteristics. However, in the past three weeks, apparent demand has shown some fluctuations, mainly due to favorable weather in East and Southern China, which accelerated the progress of key projects. Small-scale rush construction in Zhejiang, Anhui, Hainan, and Sichuan, as well as the accelerated construction of some new projects, have driven a short-term off-season demand rebound downstream. Moreover, improved macro-policy sentiment has enhanced the procurement willingness of downstream enterprises, providing some resilience to demand.
However, overall, the investment intensity in the rebar market this year is somewhat diminished compared to previous years, and the current demand rebound relies more on ongoing projects, while the material demand for new projects is relatively limited. The resilience of future apparent demand still needs observation. Although short-term demand performance has exceeded expectations, the absolute demand for rebar remains low, which also weakens the downward momentum of steel prices.
In contrast, hot rolled coil demand shows stronger resilience. Since September, hot rolled coil consumption has been growing monthly, with the output of domestic manufacturing sectors (such as machinery, automobiles, home appliances, etc.) increasing year-on-year, and particularly strong performance in the shipbuilding and container sectors. However, as mid-December approaches, the hot rolled coil market demand begins to enter a seasonal decline. Recently, inventory in hot rolled coil factories in East and North China has started to accumulate, indicating a turning point in demand. Nevertheless, supported by export demand, the decline in hot rolled coil demand may be slower than in previous years.
Supply Side Pressure Cannot be Ignored
On the supply side, overall steel mill production remains at a medium to high level. The daily average production of molten iron by 247 steel companies is 2.3247 million tons, with only a slight decrease of 0.0014 million tons from the previous period. Although entering a seasonal off-season, steel mills have low willingness to reduce production, and with low inventory levels, there is currently no significant inventory adjustment pressure.
Regarding rebar, weekly production has shown a continuous downward trend since late October. As of December 13, weekly production of rebar decreased by 44,000 tons to 2,181,000 tons week-on-week, but the decline rate narrowed compared to the previous week. Currently, inspection and maintenance in northern steel mills is the primary source of reduction, and the space for short-term rebar production decline may be limited.
In contrast, the supply of hot rolled coil shows an opposite trend. Since October, hot rolled coil production has continuously increased, reaching 3.2012 million tons on a weekly basis as of December 13, setting a new high in nearly four months, surpassing the annual average of 3.14 million tons. This is mainly due to the recovery in hot rolled coil profits, with a surge in orders from some steel mills driving production enthusiasm. However, due to recent concentrated maintenance in some East and North China steel mills, hot rolled coil production may see a marginal decline in the next two weeks.
Fundamental Contradictions Determine a Volatile Future Trend
Currently, the industrial fundamentals of rebar have not shown significant contradictions. Particularly, the off-season consumption rebound and inventory decline indicate limited downward pressure on steel prices. However, the contradictions in the hot rolled coil market are more pronounced: on one hand, production continues to increase; on the other hand, demand is entering a seasonal decline, increasing market supply and demand mismatch pressure.
Overall, the upward space for rebar prices still depends on policy changes. In a context where macro-policy expectations tend to stabilize, the market will return to being fundamentally driven. It is expected that the future trend for rebar will mainly be characterized by fluctuations, and investors need to closely monitor changes in demand and inventory, while being cautious of short-term volatility risks.
