What Are the Current Steel Market Fundamentals?
Supply-Side Dynamics
The steel production landscape is experiencing notable profitability in early 2025, with most blast furnace mills generating healthy margins from construction materials production. According to Shanghai Metal Market (SMM) data from May 6, 2025, the blast furnace operating rate reached 88.89% across 242 surveyed mills, marking a 0.31 percentage point increase week-over-week.
This favorable production environment has prompted several manufacturers to postpone planned maintenance activities, prioritizing continued output while margins remain strong. Daily pig iron production has increased to 2.4535 million metric tons, up by 12,000 mt from the previous week, reflecting the industry's drive to capitalize on current market conditions.
A significant trend has emerged in coastal regions, where steel mills are offering substantial discounts on planned rebar output to fulfill billet orders, indicating strategic production shifts based on order books and profitability considerations.
Meanwhile, electric arc furnace (EAF) mills continue facing operational challenges as steel scrap prices remain stubbornly above what SMM describes as "psychological expectations." These elevated scrap costs have forced many EAF operations to maintain medium-to-low production levels, creating a supply imbalance between blast furnace and EAF production routes.
"Supply-side pressures are not prominent for the time being, and demand expectations after the holiday are likely to be sustained, providing some support for floor prices." – SMM, May 6, 2025
In a development that could alter regional production dynamics, Southwest China is set to implement electricity price subsidies starting May 2025. These subsidies are expected to increase operating hours at mills in the region, potentially boosting supply and creating regional price disparities.
Demand-Side Conditions
Demand patterns show moderate but steady pre-holiday downstream stocking, with construction sites demonstrating consistent purchasing behavior before the holiday period. This controlled procurement approach suggests cautious optimism rather than aggressive stockpiling.
Post-holiday project procurement volume is anticipated to increase as construction activities accelerate, potentially providing demand-side support for steel prices and supply and demand dynamics. Despite slight week-on-week declines in immediate purchases, year-on-year apparent demand remains at elevated levels, indicating stronger underlying consumption compared to 2024.
Trader sentiment reflects this cautious optimism, with many market participants withholding sales in anticipation of post-holiday price increases. This strategic inventory management suggests confidence in the market's short-term trajectory while acknowledging potential volatility.
How Are Raw Material Prices Affecting Steel Production?
Iron Ore Market Conditions
Iron ore price trends have exhibited range-bound fluctuation in recent trading sessions, with the DCE I2509 contract closing at 703.5 yuan on May 6, representing a 0.78% decline. This limited price movement reflects balanced market fundamentals with neither strong bullish nor bearish catalysts dominating sentiment.
Regional transaction prices show notable geographic variations, with PB fines in the Shandong region trading between 755-760 yuan/mt, while the same grade in Tangshan commanded 765-770 yuan/mt. This regional premium highlights the impact of localized demand concentration and transportation logistics on pricing.
Higher-grade iron ore continues to maintain significant price premiums, with 66% grade dry-basis iron ore fines in Tangshan priced at 940-950 yuan/mt (delivery-to-factory, inclusive of tax). This premium underscores the value steelmakers place on higher-quality inputs that improve production efficiency and help meet increasingly stringent environmental standards.
As SMM notes, "Iron ore prices face both upward and downward pressures after the holiday, mainly continuing to fluctuate rangebound." This assessment suggests limited movement in raw material cost pressures for steelmakers in the near term.
Coking Coal and Coke Pricing Trends
The coking coal and coke markets display notable stability with consistent regional pricing patterns. Low-sulphur coking coal is quoted at 1,310 yuan/mt in Linfen and 1,370 yuan/mt in Tangshan, reflecting normal regional variations based on transportation distances and local supply-demand balances.
Metallurgical coke prices demonstrate clear quality-based stratification:
- Premium metallurgical coke (dry quenching): 1,680 yuan/mt nationwide average
- Quasi-premium metallurgical coke (dry quenching): 1,540 yuan/mt
- Premium metallurgical coke (wet quenching): 1,340 yuan/mt
- Quasi-premium metallurgical coke (wet quenching): 1,250 yuan/mt
The substantial price difference between dry and wet quenching processes (approximately 340 yuan/mt for premium grade) highlights the quality premium associated with advanced production techniques, as dry quenching produces more consistent coke with better physical properties.
Most coking enterprises have maintained profitable operations, resulting in stable production enthusiasm. This profitability provides a buffer against potential crude steel production restriction policies that might otherwise dampen coke demand.
What Price Patterns Are Emerging in Key Steel Products?
Hot Rolled Coil (HRC) Market
Hot rolled coil futures have demonstrated characteristic pre-holiday trading patterns, initially rising before pulling back to maintain range-bound fluctuation. This caution reflects market participants' reluctance to take significant positions ahead of an extended trading break.
Steel mills have exhibited high production enthusiasm with few new rolling line maintenance activities scheduled. The current maintenance impact on hot-rolled coil production stands at 40,600 mt, unchanged from the previous period. However, expected maintenance impact is forecast to increase substantially to 112,600 mt post-holiday, representing a 72,000 mt increase week-over-week.
Technical analysis suggests the HC2510 contract is projected to operate within a 3,150-3,270 yuan range after the holiday, establishing clear resistance and support levels for traders to monitor. These technical boundaries will likely influence short-term trading strategies as the market reopens.
Despite moderate downstream restocking efforts, social inventory levels of HRC have continued declining, indicating that current production levels remain inadequate to build significant stockpiles. This inventory drawdown, even during a typically slower pre-holiday period, suggests underlying demand strength that could accelerate once business activities fully resume.
Rebar Market Conditions
The rebar futures market displayed similar pre-holiday caution, fluctuating before closing at 3,096 yuan, down 0.42% from the previous trading day. Regional spot prices remained largely stable with minor loosening observed in some markets, typically in the range of 10-20 yuan/mt.
Technical analysis identifies the RB2510 contract facing key resistance levels at 3,170-3,180 yuan post-holiday. These resistance points will be closely monitored as indicators of market direction once trading resumes.
EAF mills, which produce a significant portion of China's rebar supply, continue operating at medium-to-low production levels due to persistent challenges with scrap procurement and pricing. This production constraint creates a supply-side supportive factor for rebar pricing.
A notable market development involves coastal region mills significantly reducing planned rebar output to prioritize billet orders. This production shift reflects the flexible manufacturing strategies employed by integrated producers to maximize profitability based on order books and regional demand patterns.
What Are the Inventory and Production Forecasts?
Inventory Dynamics
Steel mill and trader inventories are expected to digest more slowly during the holiday period due to reduced business activity. This normal seasonal pattern creates potential for inventory pressure to rebound in the first week after the holiday as production continues while consumption temporarily pauses.
The social inventory of finished steel products continues its declining trend, albeit at a slower pace than earlier in the year. This controlled destocking represents balanced market fundamentals rather than excessive supply drawdown that might trigger sharp price corrections.
Pre-holiday destocking efforts by producers showed mixed results across products and regions. While some manufacturers successfully reduced inventory positions, others maintained higher-than-optimal levels due to production economics favoring continued output despite slower sales.
Some traders have strategically maintained higher inventory positions in anticipation of post-holiday demand surges. This intentional inventory build represents a calculated risk based on expectations for improved pricing conditions when business activities resume at full capacity.
Production Outlook
Pig iron production is expected to decline slightly in the short term, though the decrease will likely be limited given the current profitability of blast furnace operations. With operating rates at 88.89% across surveyed mills, there is limited room for significant production increases without new capacity additions.
The potential implementation of crude steel production reduction policies represents a critical variable requiring close monitoring. Historical precedent suggests China may introduce output restrictions to meet annual carbon reduction targets, creating uncertainty for second-half production volumes.
Hot-rolled coil production continues increasing despite some scheduled maintenance activities. The expected post-holiday maintenance impact of 112,600 mt represents a significant but manageable reduction in available supply that could support price stability.
A key regional development involves Southwest China producers potentially increasing operating hours due to electricity subsidies starting in May 2025. These subsidies may create regional supply increases that could influence broader market balances, particularly if the additional production is directed toward domestic rather than export markets.
Overall steel production is maintaining moderate levels with blast furnace operations stable at high utilization rates. This production stability, combined with controlled inventory levels, suggests balanced market fundamentals entering the post-holiday period.
How Will Post-Holiday Market Conditions Develop?
Price Projection Scenarios
Spot prices are broadly expected to rise immediately after the holiday period, but most analysts anticipate limited upside potential. This cautious outlook stems from concerns about the pace and sustainability of post-holiday demand resumption.
As SMM warns: "Caution should be exercised against insufficient demand release… leading to prices jumping initially and then pulling back." This "jump then pull back" price pattern represents a significant risk scenario if initial optimism outpaces actual consumption growth.
Supply-side pressures remain manageable in the near term, with production levels largely stable and maintenance activities creating only moderate supply constraints. This supply stability reduces the likelihood of sharp price spikes driven by material shortages.
Floor prices continue receiving support from sustained demand expectations after the holiday period. Construction activity typically accelerates following seasonal breaks, providing fundamental support for steel prices and supply and demand dynamics even if speculative buying moderates.
Upward price momentum may face resistance at key technical levels identified by market analysts. For hot-rolled coil, the HC2510 contract faces resistance at 3,150-3,270 yuan, while rebar's RB2510 contract confronts similar technical barriers at 3,170-3,180 yuan.
Raw material cost support remains neutral in the immediate term, with iron ore fluctuating in a narrow range and coking coal/coke prices demonstrating relative stability. This cost stability removes a potential catalyst for significant price movements in either direction.
Market Risk Factors
Several key risk factors warrant close attention as the market reopens:
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Production policy implementation: The potential introduction of crude steel production reduction policies could significantly impact supply availability and market sentiment.
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Inventory pressure: Slower inventory digestion during the holiday period may create immediate pressure when trading resumes, particularly if post-holiday restocking proves weaker than anticipated.
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Demand release timing: Insufficient or delayed post-holiday demand could weaken market sentiment, particularly if traders who held inventory in anticipation of price increases begin liquidating positions.
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External trade factors: Ongoing tariff negotiations impact may influence export volumes and domestic supply balances, creating uncertainty for producers with significant export exposure.
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Macroeconomic policy developments: Government construction stimulus measures or credit availability changes could significantly impact project financing and execution timelines.
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Regional production shifts: The implementation of electricity price subsidies in Southwest China starting May 2025 could increase regional supply, potentially creating localized price pressures.
What Trading Strategies Should Market Participants Consider?
Pre-Holiday Positioning
Most market analysts recommended a cautious approach with light positions during the holiday period. This risk-management strategy acknowledges the potential for unexpected developments during extended market closures.
Some traders adopted a more bullish stance by withholding sales in anticipation of post-holiday price increases. This strategy reflects confidence in near-term demand growth but carries inventory risk if market conditions deteriorate.
Steel mills have generally maintained production levels due to current profitability, focusing on operational efficiency rather than strategic output adjustments. This production stability suggests manufacturers anticipate continued favorable market conditions.
Downstream buyers completed moderate restocking before the holiday, indicating neither panic buying nor significant concerns about post-holiday availability. This measured approach suggests balanced expectations rather than extreme bullish or bearish sentiment.
Post-Holiday Tactics
Market participants would be wise to monitor several key indicators immediately following the holiday:
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Early demand indicators: Initial order volumes and inquiry rates will provide crucial insights into consumption strength and buying enthusiasm.
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Technical resistance levels: Futures contracts face well-defined resistance zones (RB2510: 3,170-3,180 yuan; HC2510: 3,150-3,270 yuan) that will influence short-term trading patterns.
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Price volatility patterns: Preparing for potential initial increases followed by corrections can help traders avoid being caught in false breakouts.
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Inventory levels: Tracking mill and trader inventory positions will provide early warning signs of supply-demand imbalances.
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Raw material pricing: Monitoring iron ore, coking coal, and coke prices for cost support or pressure indicators will help anticipate profit margin developments.
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Policy announcements: Staying alert to official communications regarding production restrictions or capacity limitations remains essential for medium-term outlook.
Given the price projection scenarios and risk factors, a balanced approach that maintains flexibility while closely monitoring key indicators appears most prudent. Extreme positioning based solely on historical post-holiday patterns carries significant risk given the unique supply-demand dynamics of early 2025.
How Do Regional Market Differences Impact Overall Steel Pricing?
Coastal vs. Inland Dynamics
Regional price disparities have emerged as a significant market feature, with coastal region mills offering substantial discounts on planned rebar output to fulfill billet orders. This production adjustment reflects regional demand variations and export market opportunities.
Iron ore pricing shows notable regional differences, with Tangshan prices consistently 5-10 yuan/mt higher than Shandong region transactions. These regional premiums reflect transportation logistics, local demand concentration, and mill production economics.
The upcoming Southwest China electricity subsidies starting May 2025 create potential for increased regional production that could alter domestic supply flows. If this additional production remains in local markets rather than being transported to coastal regions, it may create regional price pressure.
Spot price variations of 10-20 yuan/mt observed across regional markets highlight the importance of local supply-demand balances in price formation. These regional differences create arbitrage opportunities for traders but complicate national pricing benchmarks.
Delivery-to-factory pricing differences directly reflect transportation cost variations, with substantial premiums for delivered material in areas distant from production centers or ports. These transportation premiums are particularly significant for high-volume, low-value products like iron ore.
International Market Influences
Several international factors continue influencing domestic steel market sentiment:
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U.S. economic indicators: Recent non-farm payrolls data showed mixed signals for global economic growth, with April figures adding 177,000 jobs – below expectations but still indicating expansion.
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Tariff negotiations: Ongoing discussions regarding steel trade barriers require careful monitoring, as changes could significantly impact export volumes and domestic supply balances.
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Global supply chains: International logistics costs and reliability continue affecting import/export economics, particularly for coastal producers with significant overseas business.
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Raw material sourcing: International iron ore and coking coal pricing trends influence domestic market sentiment, even for producers primarily using local materials.
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Currency fluctuations: Exchange rate movements impact import/export economics, potentially creating competitive advantages or disadvantages for Chinese producers in international markets.
The interaction between domestic regional variations and international market influences creates a complex pricing environment requiring sophisticated analysis and frequent reassessment. Participants active across multiple regions must carefully evaluate these factors when developing procurement or sales strategies.
FAQ: Steel Market Outlook
Will steel prices continue rising after the holiday?
Spot prices may initially rise after the holiday due to resumed trading activity and potential restocking demand. However, increases will likely be limited by several factors. Analysts caution against expectations for substantial price gains, with SMM specifically warning about the risk of prices "jumping initially and then pulling back" if demand release proves insufficient relative to trader expectations.
The balanced fundamental picture – with controlled inventory levels but stable production – suggests moderate rather than dramatic price movements in either direction. Technical resistance levels (RB2510: 3,170-3,180 yuan; HC2510: 3,150-3,270 yuan) will likely cap immediate upside potential.
How are raw material costs affecting steel production?
Raw material costs are currently providing neutral support to steel prices, creating neither significant cost pressure nor relief for producers. Iron ore prices face balanced upward and downward influences, resulting in range-bound trading within a relatively narrow band. The DCE I2509 contract closed at 703.5 yuan on May 6, reflecting this stability.
Coking coal and coke markets remain relatively stable with good fundamentals, as evidenced by consistent pricing across regions and quality grades. Most coking enterprises maintain profitable operations with steady production enthusiasm, ensuring reliable supply to steel producers.
The neutral raw material cost environment allows steel producers to focus on demand-side factors and production optimization rather than input cost management as a primary concern.
What impact will production restriction policies have?
Potential crude steel production restriction policies represent a significant uncertainty factor that could substantially affect market dynamics. If implemented, these policies would likely suppress market confidence and limit upside price potential in the short term.
Over the medium term, production restrictions could create tighter supply conditions that support prices once initial negative sentiment dissipates. Historical precedent suggests restrictions are more likely in the second half of the year as authorities work to meet annual environmental targets.
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