The steel market has been on a downward spiral since the start of January, with section steel prices plummeting like a slide. Many had hoped for a recovery in January, but it seems that any rebound is just an illusion. In such a bleak market, what will happen next? Can steel prices turn around, and how should traders respond?
Raw material billets have struggled to recover from their prolonged downturn. Steel billet prices began falling in mid-December, and although there was hope for a strong start in January, the market continued to disappoint. From 3,040 yuan/ton on December 30th, prices dropped to 2,820 yuan/ton today—a total decline of 220 yuan. In January alone, the drop reached 160 yuan, showing a more aggressive decline than expected. Compared to 3,280 yuan/ton in the same period last year, this year's performance has been far weaker, even worse than the 2008 market opening.
As of January 23rd, the mainstream stockpiles of Tangshan billets reached 666,000 tons, with 187,000 tons added in January. In 2013, the storage level was between 431,000 and 104 million tons, with 610,000 tons entering storage. The operating rate of rolling lines in billet mills has dropped to about 20–30%, reaching a low point.
Despite these low inventory levels compared to previous years, prices remain stubbornly low. Why? First, downstream mill purchase volumes have decreased significantly, from about 20 days to just 10 days, with a focus on immediate use. Previously, many steel mills held 5,000–13,000 tons of billets, enough for 3–4 days. Meanwhile, finished product prices have also been falling due to weak demand. Steel mills are now more flexible, selling at lower prices to reduce inventory. Inverted trading has become the norm.
Second, capital constraints are still tight, especially for steel mills and large customers. This has discouraged purchasing activity among merchants. Third, psychological factors play a role—many are still wary after last year’s losses, leading to cautious behavior. Even though February may see a slight upward trend, the rebound is likely to be limited due to low downstream operating rates and weak demand.
Tangshan billet prices are currently hovering between 2,830 and 2,870 yuan/ton. The situation for steel traders is tough, as prices in January 2014 were much lower than the same period last year. Last year saw a steady rise, but this year’s market has been the opposite, leaving no room for celebration during the Spring Festival.
For example, Tangshan 5# angle bars fell from 3,260 yuan on January 1st to 3,140 yuan today—a drop of 120 yuan. In contrast, the same period last year saw a 130 yuan increase. Similar trends are seen in other regions: Dongshan 10–14# slots dropped from 3,370 to 3,190 yuan, a decrease of 180 yuan, while Wushao 5# angles fell by 100 yuan to 3,270 yuan.
Currently, only small steel plants that cannot produce billets are shut down, while major producers continue operations during the holiday. According to Zhuochuang Information, factory inventories produced during the Spring Festival could increase by 10,000–15,000 tons. Small factories that have ceased operations maintain inventories at 7,000–16,000 tons, which is considered normal.
The main reasons behind the difficulty in price recovery include: first, although inventory levels are stable, downstream operations have not fully resumed, leading to weaker purchasing activity. Second, funding remains tight, with banks maintaining strict control over the steel industry. There is a possibility that merchants might initiate sales using low-cost funds.
In summary, the long-term trend of a post-holiday rebound is unlikely to change. A recovery is expected by late February or early March, with an initial range of 50–100 yuan. As downstream sectors gradually resume operations, demand and prices may rise. However, both steel mills and traders are looking for strong psychological support.
As the saying goes, "Long-term declines will eventually rise," but the market continues to be volatile. After the Spring Festival, "Jin San Yin Si" (the third and fourth months of the lunar calendar) often sees some recovery. However, Zhuo Chuang Information suggests that before the 15th day of the lunar month, the market will not show strong signs of recovery. Merchants are advised to remain cautious in buying and selling, keep a calm mindset, and pay close attention to macroeconomic policies after the holiday.
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