Mysteel: Will March's Traditional Peak Season Bring a Steel Price Rally?

The arrival of March traditionally signals the beginning of peak steel demand season in China. However, against the backdrop of complex domestic and international economic conditions, coupled with dynamic supply-demand adjustments, market participants remain divided on whether policy tailwinds from ongoing high-level meetings can catalyze meaningful price increases. This analysis examines critical price drivers across four dimensions.

I. Raw Material Cost Volatility

Post-Spring Festival iron ore prices have shown tentative stabilization after a rollercoaster trajectory, with Mysteel's 62% Fe index hovering at $112-115/dry metric ton. While coking coal declines have moderated (-4% MoM), the market anticipates at least two more coke price cuts totaling 100-150 RMB/ton, potentially boosting mill margins to 12-15%. Scrap steel prices remain rangebound at 2,850-2,900 RMB/ton, though southern markets show 1.5% weekly declines due to improved collection logistics.

Operational data reveals shifting production patterns: 15 blast furnaces resumed operations last week versus 7 new maintenance halts, pushing capacity utilization to 78.3% (+2.1pp WoW). Mills are cautiously capitalizing on improved profitability, with average cash margins reaching 180 RMB/ton for rebar producers - the highest since November 2023.

II. Supply-Demand Dynamics

Construction activity shows early recovery signals, with Mysteel's site survey indicating 68% of infrastructure projects achieving full workforce mobilization (vs 53% in February). Rebar demand is projected to grow 18-22% MoM, driven by:

• 3,200 km of new high-speed rail construction starts

• 48 major hydropower facility upgrades

• Accelerated "sponge city" drainage system deployments

However, property market headwinds persist. New housing starts remain 39% below 2021 levels, with steel intensity per square meter dropping to 48kg (from 55kg) due to lightweight design trends. Environmental inspections add production uncertainty - Tangshan's latest emission curbs have already idled 23 sintering plants, potentially trimming regional output by 1.2-1.5 million tons monthly.

III. Market Sentiment & Trade Behavior

Traders exhibit cautious optimism, maintaining inventories at 22-day coverage (vs 30-day pre-festival levels). Futures markets show divergence:

• Rebar May contracts gained 2.3% WoW to 3,880 RMB/ton

• Hot-rolled coil remained flat at 4,020 RMB

• Iron ore futures slipped 1.8% on oversupply concerns

Notably, export orders demonstrate resilience despite global trade tensions. March's forward bookings reached 850,000 tons (+15% MoM), with Middle East and ASEAN markets absorbing 73% of shipments. Domestic traders report increasing use of price hedging tools, with 38% of transactions now involving futures-linked pricing clauses.

IV. Price Outlook & Strategic Considerations

Market trajectory hinges on three key developments:

1. Policy Implementation Pace: Project funding disbursements under the 1 trillion RMB special bond program

2. Raw Material Floor: Iron ore's $105-108/t support level holding against recovering Australian shipments

3. Inventory Health: Current 18.7 million ton stockpile (-24% YoY) providing price stability

Base case projections suggest:

• Rebar: 3,850-4,100 RMB/ton range

• HRC: 4,000-4,250 RMB

• Potential 4-6% upside if infrastructure stimulus accelerates