Price trends

According to price monitoring by SunSirs, the domestic construction steel market last week (July 31-August 7) continued the pattern of low-level fluctuation seen since July; price levels edged slightly lower, with rebar prices approaching the 3,000-RMB mark. The market was characterized by weak supply and demand alongside inventory accumulation; steel prices remained sluggish under the dual pressure of weakening cost support and soft demand, though the pace of decline slowed compared to the previous period. As of August 7, the average price of HRB400 rebar in the Jiangsu-Zhejiang-Shanghai region stood at approximately 3,029 RMB/ton, down 0.26% week-on-week, while the average price of HPB300 high-speed wire rod was 3,277.5 RMB/ton, up 0.31% week-on-week.

Regarding the spot market, data monitored by SunSirs shows that the benchmark price for rebar stood at 3,037.00 RMB/ton on July 31, fell to 3,002.34 RMB/ton on August 3—a single-day drop of 1.14% that brought it close to the 3,000 RMB mark—and rebounded to 3,022.00 RMB/ton on August 4, an increase of 0.65%. As for wire rod, the price was 3,267.50 RMB/ton on July 31, dropped to 3,257.50 RMB/ton on August 3 (a decline of 0.31%), recovered slightly to 3,265.00 RMB/ton on August 4, and further stabilized around 3,277.50 RMB/ton by August 7; market sentiment shifted from earlier one-sided pessimism to a state of increased divergence.

In the futures market, the benchmark rebar contract (rb2610) experienced a corrective trend last week, initially falling before rebounding. Regarding the basis, the strengthening correlation between futures and spot prices caused the rebar basis to shift from positive to negative. As of August 7, the basis stood at -44 RMB/ton (indicating a futures premium), a further weakening from the previous day's -30 RMB/ton. This futures premium structure reflects slightly more bullish sentiment in the futures market compared to the spot market; however, the limited extent of the premium suggests that the market remains cautious regarding the potential for a future rebound.

In terms of trading activity, the market last week was characterized by a trend that started sluggishly but picked up momentum, with a notable increase in volume at lower price levels. Early in the week, as prices accelerated downward toward the 3,000-RMB mark—with some steel mills in East China lowering ex-factory prices below 3,000 RMB/ton—bearish sentiment eased. Consequently, restocking at lower price points rebounded significantly, pushing trading volume back above the 90,000-tonne level for the first time in two weeks.

Supply side: Last week saw a marked intensification in the contraction of rebar supply. The primary driver behind this production cutback is the widening scope of losses among steel mills, with the reduction being particularly pronounced among electric arc furnace (EAF) plants. For the 76 independent EAF mills producing construction steel, the average cost stood at 3,256 RMB/ton, while the average profit was -59 RMB/ton; even when utilizing off-peak electricity, the profit margin was a mere 40 RMB/ton. Amidst weakening finished steel prices and two rounds of coke price reductions, losses have mounted for both blast furnace and EAF mills, leading to increased maintenance activity and a stronger willingness to voluntarily curtail production. However, given that profit margins remain largely unchanged, it is unlikely that a consensus on widespread production cuts will emerge in the short term.

Inventory: The inventory situation was most critical last week. Total inventory across the five major steel product categories stood at 16.5319 million tonnes, up 173,700 tonnes (1.1%) week-on-week; notably, construction steel inventory rose by 167,700 tonnes (2.0%), marking a significant acceleration in the rate of accumulation compared to the previous week (0.3%). Rebar inventory in Hangzhou reached 1.222 million tonnes, far exceeding the 598,000 tonnes recorded during the same period last year. Absolute inventory levels are high for this time of year, and the turning point for destocking remains far off.

Regarding costs and profits, the cost side last week was characterized by a downward shift, albeit with narrowing room for further decline. In the coke market, the third round of price reductions is gradually taking effect, while there remains scope for negotiation regarding a potential fourth round. The value of purchasing at current levels is becoming apparent to buyers, causing the pace of decline in spot prices to slow. According to analysis by the China Metallurgical Information and Standardization Institute (CMISI), coking coal prices have recently fluctuated within a narrow range; however, cost support for coke has weakened, and with steel mills' essential demand for coke declining, further price reductions are likely, driving the overall cost baseline downward. Nevertheless, as prices have dropped to low levels, the continued tightness of coking coal supplies has led to price rebounds, providing temporary support for steel prices.

On the demand side, the weekly apparent consumption of rebar stood at just 1.7848 million tonnes last week—a sharp week-on-week decline of 204,600 tonnes and a year-on-year drop of 323,000 tonnes—marking a shift from growth to contraction and hitting the lowest level for this period in four years. The apparent consumption of the five major steel product categories totaled 7.8859 million tonnes, down 2.9% week-on-week, with consumption of construction steel falling by 9.6%. Three main factors drive this sluggish demand: first, August remains the traditional off-season for construction due to high temperatures, limiting the release of end-user steel demand; second, with steel prices trending downward, market sentiment favors buying on the rise rather than the fall, leading to cautious procurement by end-users; and third, the impending impact of typhoons in East China has dampened short-term expectations for construction steel demand.

In summary, the construction steel market last week showed signs of stabilizing at low levels, driven by the interplay between futures and spot markets and a recovery in trading volume; the benchmark rebar futures contract reclaimed the 3,000 RMB/ton mark, while spot prices found interim support near that level. However, fundamental data remains weak: rebar output stood at 1.898 million tonnes (down 105,100 tonnes), apparent consumption was 1.7848 million tonnes (down 204,600 tonnes), and total inventory reached 7.1039 million tonnes (marking the third consecutive week of accumulation and a year-on-year increase of over 1.5 million tonnes). Regarding costs and margins, while the cost base shifted downward following three rounds of coke price cuts, the drop in finished steel prices was more severe, pushing steel mills into widespread losses (losses per tonne ranged from 100-200 RMB for long-process mills and 50-100 RMB for short-process mills). Driven by these losses, 23 steel mills announced maintenance and production cut plans for August, expected to reduce construction steel output by 797,000 tonnes. In the short term, steel prices are likely to continue fluctuating at low levels to form a bottom during the first two-thirds of August; in the medium term, as the peak season approaches and costs stabilize, there may be opportunities for a temporary rebound, though the extent of any such rebound will depend on the pace of inventory destocking and the strength of demand recovery. Market participants are advised to closely monitor signals regarding inventory inflection points, the sustainability of production cuts by steel mills, and changes on the cost side.

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