Rebar Maintains Weak Oscillation Pattern

Rebar futures spot prices have recently risen and fallen. Given that the supply-demand mismatch will persist and the influence of the winter reserve game will be superimposed, the weak short-term oscillation pattern will persist.

Supply is already near the top zone

Long and short-process rebar profits continued to narrow after October. Long-process rebar gross profit decreased from 255 yuan/ton at the start of the month to around 100 yuan/ton, while short-process valley electricity gross profit increased from 46 yuan/ton. The minimum has narrowed to -22 yuan/ton, and the weekly output of rebar has decreased for three weeks in a row. However, current steel mills have not lost money due to cash flow, so the willingness to actively reduce production is not strong. Statistics show that the proportion of cash flow profits in the 247 steel mills is still 38.53%, compared to the start of production cuts in June. 15% remains a long way off. Short-process steel mills' profits have also increased as a result of the recent sharp drop in scrap steel prices. Gudian's gross profit had recovered to around 80 yuan/ton by the end of last week, and the operating rate had increased by 5.23 percentage points over the previous month. As a result, while the supply of rebar is near the peak, the slope of the subsequent decline may be slower than the production reduction cycle in June.

Demand recovery is weaker than market expectations

In comparison to other industries, high-frequency data on real estate sales did not continue to rise after November. In the first 20 trading days of October, the average sales area of commercial housing in 30 large and medium-sized cities across the country was 297,300 square meters, a year-on-year decrease of 24.7% from September. Increased by 11 percentage points. In addition, the Ministry of Finance issued a document in mid-October stating that it is not permitted to inflate land transfer income through the purchase of land by state-owned enterprises. Under the influence of the two factors, it is expected that real estate investment and new construction data will not improve significantly before the end of the year, having a significant impact on rebar consumption. However, based on high-frequency cement and asphalt data, infrastructure investment will continue to grow at a medium-to-high rate, offsetting the impact of the decline in new real estate starts on rebar consumption.

There is a short-term negative feedback risk on the cost side

As previously stated, steel production is already near the peak, so the growth potential for raw material demand is relatively limited. However, raw material supply has recently been gradually improving. Last week, global iron ore shipment volume increased by 1.461 million tons month on month to 29.436 million tons, while daily port dredging volume decreased by 160,000 tons. Coking coal inventories in domestic coal-washing plants increased by 122,700 tons last week, and coal imports also showed a gradual recovery trend. In this case, as the number of steel mills that lose cash flow grows, the price of raw materials may fall, and the price of rebar will fall even further due to negative feedback.

Overall, the mismatch between supply and demand for rebar will persist for some time, exacerbated by the game of winter storage and negative feedback from raw material prices, so its price will continue to be dominated by weak oscillations. However, because the rebar disk's discount to the spot remains relatively large, if the decline is too large in the near future to early November, you can consider winter storage on the 2305 contract disk.