I. Price Trend: Futures and Spot Prices Linked, Showing a Volatile Market of “Rise Then Stabilization”

Last week, the rebar market as a whole showed a “volatile but slightly stronger” trend, with both futures and spot prices experiencing a fluctuation process of first rising and then falling.Spot Market Stable with a Slightly Stronger Sentiment: At the beginning of the week, market confidence was boosted by the strengthening of the futures market and frequent positive macroeconomic signals. Traders, facing continued losses, showed a strong willingness to maintain prices, leading to a significant increase in quotations and a period of active market trading. However, entering the middle of the week, the pressure of “weak reality” became apparent, with end-user procurement slowing down and transactions weakening significantly. Despite this, thanks to low and continuously declining social inventories, spot prices showed strong resilience and did not experience a sharp correction, with mainstream prices closing the week with a “rise followed by stability.”

The futures market saw a rise followed by a correction: Rebar futures moved in tandem with spot prices, exhibiting a pattern of initial rise followed by a fall. At the beginning of the week, the market held strong expectations for future macroeconomic policies and environmental production restrictions, with optimism driving futures prices upward. However, subsequently, the “weak reality” of weak spot transactions began to suppress market sentiment, shaking investor confidence in the long term, and futures prices subsequently fluctuated and corrected. Looking at the basis, futures in Shanghai and Guangzhou were at a discount, while those in Beijing and Chengdu were at a premium, reflecting regional differences in market expectations for the future.

II. In-Depth Data Analysis: Supply and Demand Both Decline, but Supply Contraction is More Significant, Driving Accelerated Inventory Reduction

Last week, the rebar market fundamentals exhibited a typical “weak supply and demand” pattern, but the contraction on the supply side was significantly stronger, which is the core logic supporting prices and inventory reduction.

Supply Side: Increased Losses and Intensified Production Contraction. National weekly rebar production fell to 1.8931 million tons, a significant decrease of 8.14% week-on-week. This was mainly due to the widening losses among steel mills. Whether it was blast furnace enterprises proactively undergoing maintenance due to poor profits or electric arc furnace enterprises reducing production due to cost pressures, both led to a decline in pig iron and finished steel production. The significant contraction on the supply side is key to alleviating market pressure.

Demand Side: Seasonal Weakness, but Resilience Remains in the South. Weekly rebar consumption was 2.1698 million tons, a decrease of 4.81% week-on-week, clearly indicating the trend of entering the seasonal off-season. Regional differentiation was obvious: In the north, project construction was almost at a standstill due to temperature effects; while in the south, there was still some demand to catch up on existing projects, resulting in a relatively slower decline in consumption, demonstrating a certain degree of resilience.

Inventory: A sharp increase in destocking rate has eased pressure. With supply decreasing more than demand, total rebar inventory (factory inventory + social inventory) further decreased to 5.0381 million tons, with a faster destocking rate. Rapid inventory reduction not only directly alleviated spot market pressure but also provided a “safety cushion” for traders’ sentiment, becoming an important fundamental support for price stability.

Transaction Performance: Price and Volume Diverge, Confidence Shows Signs of Weakening. Last week’s weekly transaction volume for construction materials was 495,000 tons, a decrease of 5.32% week-on-week. The price increase but reduced transaction volume reflects that the price increase was more driven by supply contraction and expectations than by actual demand. This “high price but low volume” situation is the main reason for the unstable market sentiment and weakened upward price momentum in the latter half of the week.

III. Market Sentiment: Tug-of-War Between Macroeconomic Expectations and Weak Reality, Regional Divergence in Views

The current market is in a fierce struggle between optimistic long-term macroeconomic expectations and the current weak reality of the industry. This contradictory sentiment is reflected in market feedback from various regions.

Macroeconomic sentiment became a key support: the cases reported by the central environmental protection inspection team reinforced expectations of long-term supply constraints. This, coupled with policy anticipation ahead of important meetings and expectations of interest rate cuts by the Federal Reserve overseas, collectively contributed to market sentiment and boosted risk appetite.Regional clients held differing views: Clients in East and South China were relatively optimistic, believing that low inventory and tight supply, coupled with macroeconomic expectations, would make prices more likely to rise than fall, and expected a slightly stronger trend next week.Clients in Southwest China pointed out that resource scarcity supported prices, but tight funding exerted downward pressure, leading to a cautiously bullish view.Clients in North and Northwest China were more cautious, stating that demand had almost stagnated. Although steel mills were supporting prices, reduced transaction volume revealed market weakness, and prices were expected to consolidate or weaken.Clients in Central and Southern China believed the market was trapped in a narrow range of fluctuations due to weak supply and demand, lacking sufficient momentum for either upward or downward movement.

IV. Market Outlook: Short-term “decline followed by rise,” attention should be paid to policy and the sustainability of destocking.

Based on various viewpoints, market expectations for next week’s trend are converging, with prices likely to exhibit a “decline followed by rise” pattern. The logic behind the “initial decline”: Given the current weak reality of persistently poor transaction volume, some traders are more willing to sell in order to recoup funds, which may lead to a slight price correction to digest inflated expectations.

Support for the “subsequent rise”: After the price correction, the support level remains solid. On the one hand, the tight supply situation is unlikely to reverse, and environmental pressures and losses will continue to suppress production. On the other hand, the current low inventory level and continued expectations of macroeconomic policies will attract renewed demand for bargain hunting, providing momentum for price recovery.

Core risks and points of concern: The biggest uncertainty in the market lies in the persistence of the “weak reality” and the degree to which the “strong expectations” are realized. If the seasonal decline in demand exceeds expectations, it may severely erode market confidence. Therefore, the following needs to be closely monitored in the coming week: whether important macroeconomic meetings release unexpectedly positive signals; whether the inventory reduction rate can continue to be maintained during the off-season; and whether the cost side (especially iron ore) prices will collapse.

Last week, the rebar market recovered under the combined effect of rapidly improving fundamentals and warming macroeconomic sentiment. However, the decline in demand during the off-season is a definite trend, which determines that any price increases will be “corrective” and “oscillating,” rather than a trend reversal. The market is searching for a new balance between cost support, supply constraints, policy expectations, and seasonal demand contraction. Short-term volatility may intensify, and a cautiously optimistic, swing trading approach is recommended.

Note: Reprinted from Steel.com