Looking back over the past five years, steel prices rose in over 80% of cases during the first week after the holiday. However, on the first working day following this year's Spring Festival, prices took a sharp dive. This downturn was driven by the U.S. imposing new tariffs targeting industries such as cast iron and iron fittings. These new tariffs will be implemented independently of the recently announced global 15% tariff measures. Domestically, inventory accumulation and weakening demand for the five major steel products (rebar, wire rod, hot-rolled coil, cold-rolled coil, and medium steel plate) accumulated, demand weakened, and industrial conflicts persisted. Amidst domestic and external pressures, steel prices plunged significantly, testing the CNY3,000 threshold.

Pre-holiday spot prices trended downward, with traders showing low willingness for winter stockpiling. Post-holiday inventory data revealed a 2.6911 million-ton increase in the five major steel products to 17.1184 million tons—a slower pace than previous years but still significantly higher than the 16.1713 million tons recorded in the first week after last year's holiday (February 6, 2025).

01 Inventory: Total Below Expectations

Calculations indicate that the average daily inventory accumulation rate for rebar during the 2026 Spring Festival period was 117,500 tons, the lowest in the past five years for the same period, with accumulation slower than anticipated. However, it is important to note that the absolute total inventory of 17.1184 million tons indicates that overall inventory pressure has not eased.

02 Supply: Electric Furnaces to Resume Production After Lantern Festival, Supply Expansion Imminent

Supply dynamics diverged significantly during the holiday period:

Blast furnace plants: Maintained normal production

Electric furnace plants: Generally suspended operations for maintenance, with plans for concentrated restart after the Lantern Festival

Thus, supply pressure remains manageable in the first post-holiday week. The true test comes after the Lantern Festival—when electric furnaces fully resume operations, supply will rapidly rebound to normal levels.

Another notable supply-side variable: On February 9, the Ministry of Ecology and Environment formally incorporated the steel industry into the national carbon emissions trading market. While its short-term impact on supply and demand is limited, medium-to-long-term cost constraints are intensifying. Estimates indicate environmental compliance costs per ton of steel are approximately 212 yuan. For the roughly 200 million tons of capacity yet to complete ultra-low emission upgrades, cost pressures will continue to rise.

This implies that even if steel prices face downward pressure, cost support is stronger than in previous years. The scope for prices to fall below the cost line is narrowing.

03 Demand: Significant North-South Disparity, Manufacturing Takes the Relay Baton

In terms of the pace of resumption, the north is ahead of the south:

1. Some pipe mills and galvanized strip mills in North China have resumed production, creating rigid restocking demand for raw materials.

2. Construction sites in the south mostly await workers returning after the Lantern Festival, with actual demand yet to materialize.

However, more critical than the pace of resumption is the profound shift in demand structure. In 2025, manufacturing's share of domestic steel consumption reached 50% for the first time, signifying that: Rebar is no longer the sole driver of steel prices; plate, strip steel, and manufacturing prosperity are now deeply intertwined.

Specifically:

1. Automotive steel: 2025 consumption projected at ~63.9 million tons, up 10.9% YoY

2. Shipbuilding steel: Sustained high demand momentum

3. Real estate: Cumulative decline in new construction starts exceeds 70% over five years; drag effect weakens marginally but persists

Macro policies in 2026 also signal new directions: “anti-internal competition” is incorporated into central economic work arrangements, heightening expectations for supply-side regulation; real estate credit risks ease marginally, with supply chain risk premiums retreating.

The 2026 steel market is shifting from a “quantity-focused mindset” to a “structure-focused mindset.” While a strong post-holiday start is customary, this year's performance will be distinct: slower-than-expected inventory buildup is a positive surprise, but heavy hedging positions pose underlying concerns; cost support remains favorable, yet divergent demand structures are the reality.

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