Supply and demand pattern

Demand for rebar in our country presents obvious seasonal characteristics. September is the traditional demand season, trading volume of the national building materials of ERW pipe above 210,000 tons. In August , the daily average volume of national building materials rarely breaks through 200,000 tons, which means that the demand for rebar steel is weaker than the previous quarter. On the other hand, some steel mills have resumed production since October. In the last week of September, weekly rebar production was below 2.5 million tons, while in the latest week, rebar production has returned to more than 2.9 million tons, and supply has rebounded. Demand quarter turn weak, supply quarter rise, rebar futures appear a certain degree of decline is also reasonable.

However, in the medium term, we believe that the supply and demand pattern of rebar steel will remain stable. One is that demand of round steel pipe will continue at current levels. From the perspective of seasonal characteristics, the market has entered the off-season demand, before the arrival of winter, demand compression space is not large. In other words, the current level of national building materials volume has reflected the characteristics of the off-season. Referring to the data of previous years, the average daily volume of national building materials in October and November of the past two years is 244,000 tons, 221,000 tons and 207,000 tons, 208,000 tons, while the average daily volume of national building materials since October this year is only about 173,000 tons, significantly lower than in previous years, and the La Nina effect of high market concern has been reflected.

Second, production space of hollow section manufacturers is limited. After November, steel plant production will be suppressed from at least three aspects: energy consumption double control assessment, heating season environmental protection limit production, the Winter Olympic Games around the production limit. In the long run, carbon neutrality is the top-level design of our country, and the iron steel industry is an important industry of carbon emission. The goal of carbon emissions peaking in 2030 and mid-2060 will be a long-term factor in suppressing steel supply.

Third, the inventory consumption situation of mild steel tube has not changed. Data show that since October, the total amount of rebar inventory continued to decline. The latest phase of data shows that the inventory of rebar steel mills is 2.6039 million tons, social inventory is 5.5813 million tons, and the total inventory is 8.1852 million tons, down 26.65% year-on-year, which plays a certain role in supporting the price of rebar steel.

Fourth, from the perspective of valuation, the current spot price of rebar is around 5100 yuan/ton, the futures price is around 4500 yuan/ton, the futures are obviously discounted spot, the discount range is at a historical high, which limits the downward space of futures.

In summary, we believe that after a significant decline, the price of rebar futures has reflected the weakening of market bearish sentiment and fundamentals, and there is not much room for downside in the later period.