After the Spring Festival, the spot market for steel is expected to see a slight upward trend, driven by optimistic expectations, rising costs, and relatively stable supply and demand. The "opening" shock following the holiday has already begun, with a gradual increase in prices. Here are the key factors behind this movement:
First, current steel prices are neither too high nor too low. They have risen from a low base, with an increase of around 400 yuan per ton. In this relatively off-peak season, market participants are cautious about pushing prices higher. A period of consolidation can help build confidence and support further price increases in the long run.
Second, raw material prices are on the rise. On January 18, MYSTEEL reported that iron ore port inventories were at their lowest level in nearly two years, reaching 70.65 million tons. Additionally, weather conditions in Australia could disrupt iron ore shipments, affecting post-holiday supply chains. With the Spring Festival approaching, some steel mills are preparing raw materials, which may lead to increased purchasing activity after the holiday.
Third, rising production costs are also contributing to higher steel prices. Steel mills are increasingly using expensive raw materials purchased in previous periods, which raises overall costs. Moreover, as there is a general expectation that steel prices will rise in the near future, raw material prices are unlikely to fall, supporting steel prices. Most steel mills are not inclined to lower their prices.
Fourth, many steel mills that were previously operating at or near break-even are now expecting a short-term price rebound. This expectation encourages them to maintain or even raise prices. For example, Baosteel recently announced a price increase of between 100 to 300 yuan per ton for March.
Fifth, the gap between factory prices and spot prices is not significant, and in some cases, it's even inverted. Furthermore, downstream orders remain strong, and traders have increased their stock levels, although they are still lower than the same period last year.
Looking at historical data, the probability of steel prices rising in February has been high over the past decade. From 2001 to 2012, steel prices rose in 10 out of 12 years, with a 91% success rate. Although there have been occasional corrections, the likelihood of a "good start" after the Spring Festival remains strong. Even if there is a short-term dip, it is likely to be small and temporary.
Internationally, steel prices are also on the rise, supported by improving global economic indicators. The Baltic Dry Index (BDI) has been increasing, and both Japan and the U.S. have maintained expansionary monetary policies. Signs of recovery in real estate and other sectors are becoming more evident, which is positive for steel demand and exports.
However, there are some risks to consider. High crude steel production, tight financial conditions, and a potential surge in inventory after the holiday could put downward pressure on prices. Additionally, weak demand and uncertain market confidence may limit the extent of the price increase.
Overall, after the Spring Festival, the spot steel market is expected to show a gradual upward trend, supported by cost pressures and positive market sentiment. Investors may consider a phased strategy, especially for contracts like 1305, where prices below 4000 could present a good opportunity.
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