【SMM Black Party】Where Is the Path for Steel Prices to "Break Through" in Q2?

Spot Price Center Declined in 2025, Rebar-Wire Rod Spread Narrowed, HRC-Rebar Spread Widened In 2024, prices fluctuated downward, with the annual average price of rebar at 3,575 yuan/mt, down 322 yuan/mt YoY. In 2025, prices continued to fluctuate downward, with the spot price center declining. The average price of rebar from January to March dropped to 3,345 yuan/mt. The average spread between coiled rebar and rebar in 2024 was 203 yuan/mt, while as of March 24, 2025, the spread narrowed to 177.5 yuan/mt. The average HRC-rebar spread in 2024 was 76 yuan/mt, while as of March 24, 2025, the spread widened to 126 yuan/mt. Cost Side Declined Further, Steel Mill Profits Improved Significantly The average cost of rebar in blast furnace steel mills: January, 3,187 yuan/mt; February, 3,195 yuan/mt; March, 3,081 yuan/mt. The nationwide average price of rebar: January, 3,372 yuan/mt; February, 3,371 yuan/mt; March, 3,286 yuan/mt. On the raw material side, coke has undergone 11 rounds of price cuts, significantly improving steel mill profits and increasing their willingness to boost production. Divergence in Operating Rates Between BF and EAF Steel Mills: BF Up, EAF Down The operating trends of BF and EAF steel mills diverged. After the Two Sessions, previously idled blast furnaces resumed production, and with current steel mill profits being moderate, overall production willingness remained strong, leading to an upward trend in pig iron production. EAF mills are currently in a loss-making state, and with steel scrap being difficult to procure, some mills slightly adjusted their operating hours. Planned Production in March Increased Slightly Planned rebar production in March was 8.9948 million mt, up 1.0364 million mt from February's actual production, an increase of 13.02%, with daily average production increasing by 5,900 mt. Planned wire rod production in March was 3.5618 million mt, up 380,100 mt from February's actual production, an increase of 11.95%, with daily average production increasing by 1,300 mt. Inventory Remains Healthy, Both In-Plant and Social Inventories Below Historical Levels Supply side, in March, the number of blast furnaces resuming production exceeded those undergoing maintenance, leading to a certain increase in pig iron production, while construction steel production also rose. The operating rate of EAF steel mills rebounded to 39.68%, but according to the SMM survey, the difficulty in procuring steel scrap has not improved, and profitability remains poor, with some mills starting to incur losses and others only making marginal profits, making it difficult to further significantly increase the operating rate. Overall production in March increased slightly. Demand side, the recovery of demand in the north accelerated in March, with rebar inventory already entering a destocking phase. With both supply and demand increasing, overall destocking continued in March. Local Government Bond Issuance Accelerated, Special Refinancing Bonds May Be Prioritized The issuance of local government special bonds has accelerated, aiming to provide more incremental funds for local governments to promote investment and stabilize growth. The funds raised from new special bonds in various provinces are mainly used for municipal construction, industrial park infrastructure, social projects, transportation infrastructure, and affordable housing projects. Since August 2024, the issuance of local government bonds has significantly accelerated, with a total issuance of 7,726.2 billion yuan in 2024, up 28.99% YoY. The government will implement more proactive fiscal policies and moderately loose monetary policies, strengthening the counter-cyclical adjustment of macroeconomic policies. Local governments may prioritize issuing special refinancing bonds to reduce hidden debt. Demand Recovery Fell Short of Expectations, Later Recovery May Accelerate Rebar apparent consumption in January pulled back significantly from December, mainly due to the market closure during the Chinese New Year, with demand essentially stagnating. Rebar apparent consumption rebounded significantly from February to March, with reduced winter stockpiling before the Chinese New Year and low supply and inventory. Downstream end-users resumed work and production in an orderly manner from mid-February, but the recovery speed was relatively slow. As the Chinese New Year was earlier this year, the climate in the north remained cold, and construction conditions were insufficient. Previously issued special bonds were mainly used for debt resolution, with the actual project fund arrival rate lower than the same period in previous years. Inventory in March has entered a comprehensive destocking phase, with demand in the north recovering rapidly, accelerating the destocking speed. Profit-Driven, Construction Steel Supply Remains Low Currently, profits of blast furnace steel mills are moderate, while profits of EAF steel mills continue to be compressed. Rebar profits for blast furnace steel mills are 141.23 yuan/mt; EAF steel mills, -87.33 yuan/mt; HRC, 255.98 yuan/mt; cold-rolled coil, 375.98 yuan/mt; medium-thickness plates, 285.98 yuan/mt; and billet, 287.23 yuan/mt. Among the varieties, cold-rolled coil has the best profits, while rebar has the worst. Driven by profits, the supply of construction steel will remain relatively low. Supply-Demand Projection: Weak Balance for the Year Inventory continues to destock, with no significant imbalance in the fundamentals of construction steel. Steel mill profits have improved, increasing production enthusiasm and supply. Demand is still recovering, but the recovery speed has fallen short of expectations. In the short term, both supply and demand have room for incremental growth, and the strength of demand will be gradually verified. Price Forecast With low inventory and improved market sentiment, the market will still face demand challenges under high pig iron production. Short-term steel prices are expected to fluctuate. As the weather gradually warms up, the speed of demand recovery will accelerate. Prices in April are expected to fluctuate around demand strength, with close attention needed on the arrival of project funds. The nationwide average price of SMM rebar in April is expected to fluctuate between [3,150, 3,450] yuan/mt.