Strong Bullish Sentiment Arises from Stagnant Rebar Transactions during CNY Holiday

SHANGHAI, Jan 28 (SMM) - During the Chinese New Year (CNY) holiday, the rebar transactions in the spot market basically stagnated. The quotations were mainly stable, except for slight increases in the quotations of several suppliers. After the holiday, the market quotations have been generally higher. As of January 28, the rebar in Hangzhou (Zenith Steel Group) was quoted at 4,210 yuan/mt, 40-50 yuan/mt higher than pre-holiday offers; the rebar in Beijing (HBIS Group) is quoted at 4,100 yuan/mt, up 40-50 yuan/mt; the quotes of rebar in Shanghai (Shagang Group) were flat at 4,110 yuan/mt. However, as most terminal enterprises and futures companies were still on vacation, the transactions in the market were quiet. It is learned that traders will start to resume trading since January 28, and most of the terminal construction projects will resume operation after February 5.  

SMM believes that the rebar prices in the first week after the CNY holiday are likely to extend the previous upward trend. From a fundamental point of view, the current output of rebar stood at an absolutely low level compared with the same period of previous lunar years. The inventory of rebar totalled 7.17 million mt before the holiday, and only accumulated by 30% during the holiday due to the low output, which was far lower than the 45-60% of comparable months in the previous years. In terms of cost, most steel mills completed raw material replenishment before the holiday when iron ore prices stood high. Since the production cost of rebar remained high, some steel mills raised ex-factory prices by 50-100 yuan/mt during the holiday, adding to the costs of traders. Against the backdrop of low output, low inventory, and high costs, the post-holiday steel prices may continue to rise.  

However, the CNY holiday arrived early this year, which means the cold weather extends even when the holiday concludes and is not conducive to the recovery of terminal demand. In this scenario, the inventory may continue to go up. In addition, more than 70% of rebar stocks were concentrated in the social inventory. If the demand does not pick up as quickly as expected, chances are that traders will sell off in advance.