Overview: In September, steel mill production of construction steel in the Beijing-Tianjin-Hebei region continued to decline slightly compared to the previous month. Arrivals of foreign resources into the Beijing market in September were normal, with no significant acceleration in the pace of arrivals. Demand recovered somewhat in September, with downstream construction progress accelerating and speculative demand moderate. Futures and spot companies were still primarily focused on receiving goods, and market inventories continued to increase. The Federal Reserve cut interest rates by 25 basis points at its September meeting, but fell short of the expected 50 basis point cut. The market has fully priced in this 25 basis point cut. At the State Council Information Office press conference on September 22, the central bank announced that this press conference would not involve any short-term policy adjustments. The occasional "anti-involution" news release has had a diminishing impact on bullish sentiment. Ferrous commodities have collectively weakened, with rebar futures declining, and Beijing's spot price of construction steel has continued its downward trend.
Raw material prices fell slightly in September compared to August. By the end of September, the spot price of PB fines at Caofeidian Port had fallen by 6 yuan/ton compared to the end of August. Coke prices were raised and lowered twice, with a combined drop of 100-110 yuan/ton. Steel mill production costs fell slightly, and the spot price of rebar in Beijing continued to decline, narrowing losses slightly. Futures and spot companies are still primarily focused on receiving goods. Steel mills are incurring small losses on rebar. Downstream demand in the Beijing-Tianjin-Hebei region has recovered, but the recovery is limited. Rebar production in the region is expected to remain stable in October, and Beijing market inventories are expected to increase first and then decrease. The Fourth Plenary Session of the 20th Central Committee of the Communist Party of China, to be held in October, will discuss recommendations for the 15th Five-Year Plan. Whether the Federal Reserve will cut interest rates again at its meeting at the end of October may influence the next policy direction of the People's Bank of China. Furthermore, whether downstream steel demand will recover faster in October and whether social inventories can be effectively reduced are key market concerns. How will market prices develop? We analyze this from the following perspectives:
1. National construction steel prices primarily fell in September
Looking back at September, national construction steel market prices primarily fell, with the average price dropping by 58 yuan/ton, a month-on-month decrease of 1.74%. Beijing's terminal demand recovered slightly, but the intensity was modest. The arrival of resources was normal, accelerating compared to the previous month, and inventories continued to increase. Rebar futures fluctuated downward, impacting spot prices. Spot traders' efforts to destock were modest, and futures and spot companies did not ship in large quantities. This month, prices in Beijing, Shanghai, Jinan, Taiyuan, Shenyang, Chongqing, and Xi'an all fell month-on-month, ranging from 40 to 110 yuan/ton.
2. Beijing's price drop was greater than in mainstream southern regions, widening the north-south price gap.
In September, the regional price gap between Beijing and most major construction steel markets widened, primarily due to a larger month-over-month price drop in Beijing. By the end of September, the price gap between Guangzhou and Beijing was 160 yuan/ton, an increase of 80 yuan/ton month-over-month. The Hangzhou-Beijing price gap widened by 40 yuan/ton to 140 yuan/ton, while the Beijing-Shenyang price gap narrowed by 40 yuan/ton to -20 yuan/ton. The Beijing-Baotou price gap narrowed by 20 yuan/ton month-over-month to 90 yuan/ton.
3. Rebar production continued to decline slightly in September; October output may remain stable month-over-month.
In September, rebar production at steel mills in the Beijing-Tianjin-Hebei region continued to decline slightly, decreasing by 19,100 tons month-over-month. Regarding costs, rebar production costs at steel mills in the region declined slightly, falling by 41 yuan/ton month-over-month from the end of August. Coke prices saw two rounds of price increases and decreases, while iron ore prices fell slightly, leading to a slight decrease in steel mill production costs compared to the end of last month. Spot prices in the Beijing market also fell, narrowing losses slightly at steel mills in the Beijing-Tianjin-Hebei region. Beijing's weather gradually cooled in October, but remained suitable for construction and outdoor work. End-user demand is expected to remain stable compared to September, leading to a slight narrowing of steel mill losses. Rebar production is expected to remain stable month-on-month in October.
IV. Inventory in the Beijing market continued to increase in September; inventories may first increase and then decrease in October.
In September, steel mill production of construction steel continued to decrease slightly in the Beijing-Tianjin-Hebei region, but supply to the Beijing market increased month-on-month, while supply from other regions remained normal. With less hot weather and increased outdoor work, demand recovered somewhat, but the strength of the recovery was less than expected. Supply in the Beijing market increased month-on-month in September. Weather conditions in Beijing gradually became more suitable for outdoor work in September, accelerating construction progress at construction sites and leading to an increase in end-user purchases, but less than expected. Futures and spot companies are still actively receiving goods in the Beijing market, but shipments began to accelerate in late September. Overall, total inventory in the Beijing market continued to increase, but declined slightly from its peak in the latter half of the month. As of September 26, Beijing's construction steel market inventory increased by 44,100 tons, a 9.65% increase, compared to August 29. Rebar production at steel mills in the Beijing-Tianjin-Hebei region is expected to remain stable in October. As demand remains at its peak, the amount of resources released to the market is likely to continue to increase. Arrivals in the Beijing market are likely to continue to increase slightly month-over-month, leading to a slight increase in end-user demand. Futures and spot companies may accelerate their shipments, and inventories in the Beijing market are expected to initially increase and then decrease in October.
V. End-user demand recovered in September, and overall demand may increase slightly in October.
As the hot and rainy weather of September gradually subsided, disruptions to outdoor operations continued to decrease, leading to a recovery in end-user demand in Beijing. However, downstream demand remained weak, resulting in a slight increase in supply and continued inventory growth. Spot prices weakened in line with futures prices. Futures and spot companies are both receiving and shipping goods, but shipments increased in late September. One-sided speculative demand was relatively low in September. In October, the average daily trading volume of sample merchants in Beijing increased by 8.04% month-on-month. October remains a suitable season for outdoor construction in Beijing, and downstream construction sites may accelerate their pace. Purchases of construction steel may continue to increase slightly, leading to a slight increase in overall demand in October.
VI. Summary
On the supply side, rebar losses at steel mills in the Beijing-Tianjin-Hebei region have narrowed. Furthermore, October remains traditionally a peak season for steel consumption, and end-user demand remains resilient. A significant slowdown in steel mill production is unlikely. Rebar production at steel mills in the Beijing-Tianjin-Hebei region is likely to remain stable month-on-month in October, and market supply is expected to continue to increase. From the perspective of resource supply, current prices in the Beijing market are not at their highest, making them limitedly attractive to foreign resources. Furthermore, foreign resources will likely be consumed within their respective regions during the peak consumption season in October. However, shipments to the Beijing market may begin gradually at the end of October, leading to a slight increase in the supply of foreign resources to the Beijing market in October. Arrivals in the Beijing market are expected to continue to increase slightly month-over-month in October.
On the demand side, October remains a suitable season for outdoor construction in Beijing, and downstream construction sites may accelerate their pace, leading to a continued slight increase in construction steel procurement. Futures and spot companies may step up shipments, particularly to unwind arbitrage positions. Unilateral speculative demand may emerge periodically, but on a smaller scale. Contractual parties may accelerate inventory reductions, leading to a slight increase in overall demand in October.
On the inventory side, supply in the Beijing market is expected to continue to increase slightly in October, while demand may continue to recover. Inventory in the Beijing market is expected to increase first and then decrease.
Overall, October is still the traditional peak season for steel consumption, and the resilience of terminal demand will be maintained. Steel mills may maintain stable production, and the rebar output of steel mills in the Beijing-Tianjin-Hebei region may remain stable. The supply of resources from other places may increase slightly, and the arrival volume in the Beijing market is expected to continue to increase slightly month-on-month. In October, terminal demand may continue to increase month-on-month compared with the previous month. Futures and spot companies may step up shipments, especially for the unwinding of arbitrage resources. Unilateral speculative demand may appear periodically, but on a small scale. Contract households may accelerate inventory reduction. Overall, it is expected that the inventory in the Beijing market will increase first and then decrease. From a macroeconomic perspective, the Fourth Plenary Session of the 20th Central Committee of the Communist Party of China, which will be held in October, will study suggestions on the formulation of the 15th Five-Year Plan, which may boost market expectations. If the Federal Reserve cuts interest rates again at the October interest rate meeting, the domestic central bank may follow suit and adjust its monetary policy. In summary, it is expected that prices in the Beijing construction steel market will fluctuate and rise in October.
