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As demand recovery continues to underperform expectations in recent years, China’s steel market has shown remarkable resilience despite persistent price fluctuations. With critical domestic policy meetings approaching, market sentiment remains torn between cautious optimism and growing concerns over raw material risks. While low inventory levels and controlled supply have cushioned price declines, rising iron ore valuations and falling coking coal costs threaten to destabilize the cost foundation.
I. Sluggish Demand Recovery vs. Market Resilience
Despite the Lunar New Year holiday season ending, downstream demand has yet to gain meaningful momentum. Data from Century Building Surveys reveals a 64.6% construction site restart rate as of February 27 (Lunar calendar), lagging historical averages, with labor participation at 61.7% and capital availability at 49.1%. These figures align with lukewarm spot market transactions—daily sales of construction steel averaged 107,155 tons in late February, mirroring 2024’s weak post-holiday performance.
Yet, steel prices have defied gravity due to historically lean inventories. Both mill and social stockpiles hover 20% below seasonal norms, while production increases remain restrained. Weekly output of five major steel products reached 842,260 tons (+0.7% WoW), with apparent consumption rising for both long and flat products. This supply-demand equilibrium has shortened the traditional stock accumulation cycle, creating a fragile price floor.
II. Raw Material Risks Loom Large
Iron ore’s divergence from steel prices has reached alarming levels. Since October 2024, Mysteel’s import ore index has climbed 23.5%, even as finished steel prices fell 14.8%. Temporary supply disruptions—including Australian cyclone impacts—have propped up port inventories at 128 million tons (-18% YoY), but this support appears transient. Analysts warn that 62% Fe ore’s price-to-steel ratio now exceeds 0.48, signaling severe overvaluation.
Meanwhile, coking coal’s downward spiral continues unabated. Ten consecutive price cuts (-500-550 RMB/t total) have pushed 65% of coke producers into losses. Though blast furnace output shows tentative recovery at 2.2794 million tons/week, operational rates remain below the 2.35 million ton breakeven threshold. With coal inventories swelling and potential crude steel output restrictions looming, raw material costs face further erosion.
III. Macro Crosscurrents Reshape Expectations
Domestically, policymakers balance aggressive fiscal support against currency stability. While infrastructure bonds front-loading (40% Q1 allocation vs. 35% in 2024) aims to spur demand, PBOC’s rate cut capacity remains constrained by the -120bps US-China yield gap. Industry reforms add complexity—carbon trading costs now average 85 RMB/ton (+37% YoY), and regional emission caps strictly enforce 65% capacity utilization in key zones.
Globally, trade tensions escalate. Though direct US-China steel trade remains minimal (3.2% exposure), Washington’s 10% tariff hike risks triggering global protectionism. Seven anti-dumping cases already target ASEAN exports in 2025, while Europe’s CBAM trial (€45/ton CO₂) mandates costly compliance upgrades. These pressures compound existing challenges for China’s $72 billion steel export sector.
IV. Price Outlook: Volatility as the New Normal
Current price swings reflect clashing narratives—physical market weakness versus policy optimism. With iron ore’s supply recovery delayed until mid-March and coking coal’s cost floor still elusive, Q2 may bring sharper corrections. Rebar futures are projected to swing between 3,800-4,050 RMB/ton, contingent on three factors:
Fiscal stimulus scale (watch for >500B RMB special bonds)
Export order sustainability (15% loss threshold critical)
Carbon policy implementation rigor
Market participants must adopt agile strategies: mills should prioritize high-margin exports and scrap flexibility, traders need enhanced hedging (30% futures coverage advised), and buyers could exploit raw material arbitrage windows.
