Steel Mill Profits Deteriorate, Impact from Maintenance on Construction Steel Increases

According to the SMM survey, the impact from maintenance on construction steel increased during this period (11.8-11.14), mainly due to multiple steel mills in east China conducting maintenance or halting production on their rebar rolling lines. The impact from maintenance on construction steel was 1.3546 million mt, up 58,300 mt WoW.

Due to the overextension of macro expectations, market logic returned to reality, and active bearish funds led to a pullback in futures. Fundamentally, demand in the north has weakened significantly compared to the previous period, while other regions experienced average transaction performance due to rainy weather, with overall construction steel demand lower than the previous week's level. Although inventory continued to decline last Thursday, it remained higher than the same period last year, especially as inventory pressure in some markets increased rather than decreased, leading to weak support for spot prices of construction steel. The weekly average price of representative rebar in east China was 3,110 yuan/mt, down 26 yuan/mt WoW. In contrast, on the cost side, although the fundamentals of iron ore deteriorated and prices fell, the third round of coke price increases was implemented, resulting in high production costs per ton of steel, continuously compressing steel mill profits, and significantly reducing production enthusiasm. The impact from maintenance on construction steel increased slightly during this period.

According to the SMM survey, the impact from maintenance in east China decreased, with some steel mills conducting maintenance on blast furnaces or converters, accompanied by the shutdown of associated rebar rolling lines. Meanwhile, individual steel mills, due to losses on production, halted and maintained two bar rolling lines. In comparison, the impact from maintenance in north China decreased slightly, with some steel mills' rebar rolling lines resuming production after maintenance in the previous period. Rolling lines in other regions maintained the maintenance status from the previous week, with no significant changes in the impact from maintenance.

Looking ahead, as the year-end approaches, cold weather in the north will slow down or halt construction, potentially leading to a seasonal decline in construction steel demand. If the speed of inventory reduction is slower than expected, market pessimism may continue to escalate, making rebar futures and spot prices more likely to fall than rise. On the cost side, supported by coking coal costs, there are plans for a fourth round of coke price increases, maintaining support from the raw material end. Under the combined influence, most steel mills producing construction steel may continue to incur losses in the short term, and it is not ruled out that more steel mills will schedule annual maintenance, prioritizing the production of high-profit varieties. It is expected that the impact from maintenance on construction steel may increase slightly next week.