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Over the past two days, much of China has experienced rain and snow, with southern regions seeing more frequent rainfall. In the coming days, precipitation and snowfall are expected to intensify across most areas. This adverse weather is causing disruptions for downstream construction activities, which in turn is affecting steel market operations. As a result, steel prices are unlikely to rebound quickly in the short term, and what might have been a promising start could be hindered by the "cold spring," making a strong recovery difficult.
Recent macroeconomic data has been largely bearish. In January, the steel PMI hit its lowest level since May, while the non-manufacturing PMI reached a five-year low. Additionally, the HSBC PMI fell below the 50 threshold, signaling contraction. With the market in decline and the influence of the Spring Festival holidays, steel and iron companies saw a sharp drop in activity. The domestic steel market as a whole showed a trend of falling prices, and economic recovery continues to slow down. Although optimism may persist before the holiday, the steel market has been stuck in a long period of low prices, with businesses showing a stronger inclination to push prices up. However, in the short term, steel prices still face significant upward resistance.
One key factor is the pressure from short-term funding shortages. In the open market, the central bank conducted only a reverse repurchase last week, right at the end of the holiday period. On New Year’s Eve, which coincided with Thursday, there was anticipation that the central bank would inject liquidity before the holiday, but no such action was taken. This suggests that the central bank's overall monetary policy remains neutral. Meanwhile, market interest rates have rebounded. As of January 26, the discount rate at Shanghai Huda Securities stood at 6.43‰, a 5.06% increase compared to the beginning of the month. Overall, capital costs are rising, and the funding situation is becoming increasingly tight.
Secondly, domestic steel production capacity continues to grow, while demand growth remains limited, leading to ongoing supply-demand pressures. Reports indicate that blast furnace operations in the Tangshan area were mostly normal during the Spring Festival. Some furnaces were under maintenance, while others were not properly repaired. As the holiday comes to an end, market demand is expected to gradually pick up. Steel mills are likely to experience a busy period after the holiday, with blast furnace utilization rates expected to rebound. However, the post-holiday demand is starting slowly due to the traditional holiday effects and delayed market entry habits of steel traders. February is expected to remain closed or semi-closed, and the low-demand scenario is unlikely to change soon. With demand constrained by timing, steel mill and market inventories will continue to rise, increasing supply pressure significantly.
In addition, iron ore supply is increasing, and the likelihood of a slight price decline is high, weakening the support for steel prices. During the Spring Festival, the Platts index dropped by $1.75, and the current 62% Australian iron ore index stands at $121.25 per tonne. With the recent drop in temperatures across much of the country and widespread rain and snow, steel mills may delay their purchasing plans. For the post-holiday market, the overall outlook remains pessimistic, and a loss of $120 is now a high-probability event. Moreover, the recent surge in port inventories, along with increased shipments from Pakistan and Australia, and the high level of port stockpiles, will be the biggest obstacle to higher iron ore prices.
In summary, the post-holiday market environment is more negative than positive, and steel prices face considerable resistance. Considering that the overall steel market is still in a state of oversupply and raw material prices remain weak, steel price support is likely to continue declining. The probability of steel prices remaining vulnerable in the short term is high. However, given that current steel prices are already at relatively low levels, there is limited room for further declines.Product categories of Gearless Traction Machine, we are specialized manufacturers from China, Gearless Traction Machine, Gearless Traction Elevator suppliers/factory, wholesale high-quality products of Gearless Elevator Traction Machine R & D and manufacturing, we have the perfect after-sales service and technical support. Look forward to your cooperation!
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