SunSirs: Year-End Steel Market to See Differentiated Performance Amid Volatility

In November, China's steel market followed a pattern of declining before rebounding. As the year draws to a close, the steel market is expected to exhibit differentiated performance amid volatility. Although steel inventories remain relatively high, putting upward pressure on prices, market performance varies across different steel grades and regions.

From a macro perspective, market liquidity and economic conditions have improved following the resolution of the U.S. government shutdown. The recent Federal Reserve monetary policy meeting announced a 25-basis-point cut in the federal funds rate target range to 3.5%–3.75%. This marks the third consecutive rate cut of 25 basis points since September this year and the sixth cut since the Fed initiated its current easing cycle in September 2024. Additionally, the World Bank recently raised its 2025 Chinese economic growth forecast by 0.4 percentage points in its latest China Economic Update. The World Bank stated that China's more proactive fiscal policy and moderately accommodative monetary policy have supported domestic consumption and investment. Meanwhile, the recently convened Central Economic Work Conference emphasized that next year's economic policy orientation should prioritize stability while pursuing progress, enhance quality and efficiency, leverage the combined effects of existing and new policies, strengthen countercyclical and cross-cycle adjustments, and improve macroeconomic governance effectiveness. Against this backdrop, market sentiment has seen some recovery.

Fundamentally, despite a modest decline in November production of the five major steel products (week-on-week decrease of 640,000 tons), steel inventories still fell by 1.13 million tons. Data from the China Iron and Steel Association shows that by late November, social inventories of these five steel products across 21 cities totaled 8.33 million tons, down 380,000 tons (4.4%) from the previous ten-day period. Inventories have been declining continuously, with the pace of reduction accelerating. Meanwhile, the Baltic Dry Index (BDI)—a leading indicator for global economic and trade activity—rebounded from 2,275 points on November 21 to 2,560 points by late November, hitting a multi-year high with a 12.5% surge. This recovery primarily stemmed from increased trade volumes.

The new orders index and new export orders index rose by 0.4 percentage points and 1.7 percentage points respectively in November compared to the previous month, exceeding the rebound in the production index. The export index fell by 7.1 percentage points month-on-month in November. Considering that all four key sub-indices for the construction sector showed varying degrees of month-on-month improvement, steel exports are expected to decline toward year-end. However, domestic manufacturing and construction steel demand may demonstrate resilience.

December serves as a critical juncture for evaluating annual performance. While meeting key economic targets is virtually assured, uncertainties such as the implementation of production controls and environmental inspections may still impact the market. As steel market fundamentals improve, previously undervalued steel prices are poised for a phase of recovery and rebound, though regional variations may occur. Although year-end supply-demand imbalances persist, they are expected to ease.

Currently loss-making steel enterprises should actively control production to secure cash flow. Steel traders should act in line with market demand where it exists. End-users should procure based on actual needs. Relevant government departments should continue to advance production control measures for steel enterprises and substantive “anti-internal competition” initiatives.

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