According to the China Times, following a significant correction earlier, rebar futures have recently seen a marked rebound. On 16 April, the rebar 2610 contract opened and fluctuated before strengthening, breaking through previous resistance during trading to reach a high of 3,136 RMB/tonne. It eventually closed at 3,133 RMB/tonne, up 33 RMB/tonne or 1.06% from the previous settlement price, with trading volume expanding to 698,700 lots. Driven by a rebound in raw material prices, cost support has shifted upwards.

With the news of improved liquidity in the spot market for Jimbuba iron ore now confirmed, the bearish factors affecting the ferrous metals sector have largely been priced in for the short term. Against the backdrop of seasonal destocking, once rebar futures prices approached the 3,100 RMB/tonne threshold, the scope for further downside was minimal; short sellers reduced their positions and exited the market, driving the price rebound.

Spot rebar prices have risen slightly recently, with the increase in East China exceeding that in North China; rebar futures prices showed mixed performance in the first quarter. From January to February, as the Spring Festival approached, the steel market entered its traditional off-season, with downstream demand continuing to decline rapidly. However, pig iron output continued to grow, and steel inventories continued to accumulate, with hot-rolled coil inventory pressure remaining particularly high.

On the raw materials front, coal imports from Mongolia remained at high levels, whilst port inventories of iron ore stood at their highest levels for this time of year. With steel market fundamentals showing marginal weakness and cost support easing, steel prices retreated overall. In late February, amid geopolitical tensions, market concerns over global energy supply and rising shipping costs intensified, driving up coal prices. Coking coal futures followed suit, and rebar prices rose in tandem.

Meanwhile, in March, ongoing geopolitical conflicts continued to drive up energy prices, with rising seaborne and mining costs for iron ore. Coking coal strengthened, supported by the logic of energy substitution, and coupled with a gradual recovery in downstream demand for rebar, futures prices experienced a rally. Entering April, the market focused on the actual realisation of demand. Domestic demand remained persistently weak, with slow destocking of plate and strip steel inventories, and demand supported solely by exports. Coupled with the resumption of ceasefire negotiations between the US and Iran and the easing of geopolitical tensions, rebar futures prices weakened once again.

Increasing divergence in rebar demand

It is worth noting that rebar production has maintained an upward trend since March. As of 9 April, weekly rebar output stood at 2.1559 million tonnes, approaching the level seen during the same period in 2024. In response, pig iron output has also continued to rise. As of 9 April, the average daily pig iron output of 247 sample steel mills stood at 2.3938 million tonnes, approaching historical highs for the same period. Taking into account recent maintenance and resumption of production at steel mills, pig iron output is expected to peak in late April, with its ability to remain at high levels depending on the resilience of end-user demand.

In terms of demand, rebar demand has been generally weak, with spot market transactions performing modestly; however, after futures prices reached RMB3,100 per tonne, transaction volumes improved slightly month-on-month. Spot prices continue to track futures movements, with downstream buyers adopting a ‘buy on the rise, not on the fall’ approach, indicating an improvement in speculative sentiment. There is a marked divergence in transaction volumes between northern and southern regions, with demand in East China significantly outperforming that in North and South China; spot prices in East China are typically responsive and lead the rise in futures prices. Purchasing is primarily driven by essential demand, whilst the buffer function of traders continues to contract. Coupled with the futures market maintaining a backwardation structure for distant months, arbitrage between futures and spot markets remains challenging.

Although the demand cycle remains in its peak season from mid-April to early May, recent rainfall in the south has dampened spot market activity. Demand in the north remains stable but lacks growth, whilst demand in East China is relatively robust; overall demand performance has not exceeded seasonal expectations. Furthermore, whilst speculative demand was boosted by substantial inflows of funds into the futures and spot markets when basis differentials were at low levels earlier, recent profit-taking by arbitrage funds has led to a weakening of speculative demand, with steel mills reporting a decline in order intake.

As rebar futures prices continue to fluctuate, the factors influencing their price movements have drawn public attention. In this regard, rebar production is currently recovering, with overall inventories showing a downward trend, and the fundamentals exhibiting marginal signs of improvement. However, should geopolitical tensions abroad ease, this would lead to a fall in energy prices, thereby weakening support from the raw materials side of the steel sector. It is anticipated that rebar prices will generally maintain a range-bound trend in the second quarter, with relatively low volatility; investors are advised to adopt a strategy of buying low and selling high within this range.

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