Price and Basis - The prices for rebar and hot-rolled coil have strengthened this week, with January and May contracts for rebar at 3137 CNY and 3157 CNY, and for hot-rolled coil at 3312 CNY and 3320 CNY respectively [1] - The price difference between rebar and hot-rolled coil has narrowed, with a current spot price difference of 170 CNY per ton, and January and May contract differences at 175 CNY and 163 CNY per ton respectively [1] - The basis for rebar has strengthened by approximately 20 CNY this week, with January and May contracts at -7 CNY/ton and -27 CNY/ton respectively; hot-rolled coil basis has fluctuated, with January at -2 CNY and May at -10 CNY [1] Cost and Profit - On the cost side, coking coal prices have weakened recently, and iron ore prices are showing signs of peaking and declining due to a continuous decrease in molten iron production [1] - Steel mills have reduced production, leading to a slight recovery in profits, but the expected profit recovery space remains limited due to the off-season [1] - Current profit rankings from high to low are cold-rolled > steel billet > hot-rolled > rebar [1] Supply - From January to November, iron element production increased by 4.1% year-on-year, with a projected annual increase of 3.7% [2] - Molten iron production continues to decline, with a decrease of 26,700 tons to 829,000 tons, and rebar production is below demand [2] - Rebar production decreased by 170,000 tons to 1,890,000 tons, while hot-rolled coil production decreased by 50,000 tons to 3,140,000 tons, indicating a balanced supply-demand situation for hot-rolled coil [2] Demand - Domestic demand remains weak, while exports are supported by low prices; November demand increased to 8,770,000 tons, but is still lower than last year [2] - December demand is expected to weaken seasonally, with a projected decrease of 240,000 tons to 8,640,000 tons [2] - Both rebar and hot-rolled coil demand have decreased, with rebar down by 110,000 tons to 2,170,000 tons and hot-rolled coil down by 54,000 tons to 3,150,000 tons [2] Inventory - This week saw a reduction in inventory, with total inventory for five major materials down by 350,000 tons to 13,660,000 tons [2] - Rebar inventory decreased by 280,000 tons to 5,040,000 tons, while hot-rolled coil inventory saw a minor decrease of 5,000 tons to 400,000 tons [2] - The reduction in hot-rolled coil production is not significant, indicating a balanced supply-demand situation with slow inventory depletion [2] Market Outlook - The basis for rebar has strengthened while that for hot-rolled coil has weakened, with a continued convergence in price differences [3] - Overall demand has declined, and steel mills are continuing to reduce production; absolute price increases are insufficient to drive the market, but production cuts provide some support [3] - Price fluctuations are expected to remain within the ranges of 3000-3200 CNY for rebar and 3200-3350 CNY for hot-rolled coil, with ongoing inventory depletion reflected in stronger basis and rising profits [3] Strategy - The strategy remains focused on the convergence of price differences between rebar and hot-rolled coil, with recommendations for multi-rebar and short iron ore arbitrage [4][5]

Core Viewpoint - The steel market is experiencing a decline in demand and production, with inventory levels remaining high and a shift in iron ore supply dynamics expected to impact future production [6]. Group 1: Spot Market - The spot market remains stable with minor fluctuations in basis; Shanghai rebar prices increased by 10 to 3040 yuan/ton, while hot-rolled coil prices decreased by 10 to 3270 yuan/ton [1]. Group 2: Costs and Profits - The operating rates and daily output of coal mines remain low, with coal inventories decreasing; iron ore demand remains high, leading to continued inventory accumulation. Recent steel profits have significantly declined, with the cost support for iron elements being weak and carbon elements providing some support. Current profit rankings from high to low are: billet > hot-rolled coil > rebar > cold-rolled coil [2]. Group 3: Supply - From January to September, iron element production increased by 5% year-on-year. However, there has been a notable decline in molten iron production recently, with a month-on-month increase of 26,600 tons to 2.3688 million tons. Seasonal production cuts due to high inventory levels have led to a reduction in the output of the five major steel products, decreasing by 224,000 tons to 8.344 million tons, with rebar production down by 85,000 tons to 2 million tons, below the demand of 2.164 million tons [3]. Group 4: Demand - Demand remains weak domestically, while exports are holding at high levels, supported by low prices. The total demand has decreased by 63,000 tons to 8.6 million tons, with rebar demand down by 21,500 tons to 2.164 million tons and hot-rolled coil demand down by 7,000 tons to 3.136 million tons [4]. Group 5: Inventory - Inventory levels for the five major steel products decreased by 263,000 tons to 14.7735 million tons, with rebar inventory down by 164,000 tons to 5.762 million tons, while hot-rolled coil inventory increased slightly by 700 tons to 4.1 million tons. The inventory for hot-rolled coils is close to demand, indicating a need for continued production cuts to alleviate inventory pressure [5]. Group 6: Outlook - Weekly data indicates a decline in demand for the five major steel products, leading to production cuts and sustained inventory reduction. The increase in molten iron production is expected to affect future finished product output. Rebar production is being reduced to clear inventory, while hot-rolled coil supply and demand are balanced, with high inventory levels persisting. Iron ore port inventories continue to accumulate, and the supply of iron elements is expected to become more relaxed in January, suggesting a negative feedback loop in the iron element chain, making long positions less advisable. The strategy of shorting coal and hot-rolled coil may continue, with attention to coal mine resumption risks [6].

Price and Basis - Prices have significantly declined this week, with Shanghai rebar at 3040 yuan, Beijing rebar at 3060 yuan, and Guangzhou rebar at 2980 yuan; Shanghai rebar basis at -3 yuan; Shanghai hot rolled at 3280 yuan, Lecong hot rolled at 3230 yuan, with Shanghai hot rolled basis at 76 yuan. Rebar basis has strengthened while hot rolled basis has weakened. The cross-period price difference has weakened, with the 1-5 price difference declining [1] Cost and Profit - On the cost side, the operating rate and daily output of coal mines in the Steel Union sample remain low, year-on-year at a low level; raw coal and coking coal inventories are being depleted. Iron ore demand remains high with a slight inventory increase. Recent steel profits have significantly declined from high levels, with iron element costs decreasing and carbon element costs supported. Current profits from high to low are: steel billet > hot rolled > rebar > cold rolled [1] Supply - From January to September, iron element output increased by 5% year-on-year. Due to last year's high base in Q4, the annual growth rate is expected to narrow. There are signs of reduced iron water production, down by 0.5 million tons to 2.4 million tons. This year's incremental iron water is more directed towards steel billets and non-major materials, with major materials' output year-on-year remaining flat and incremental output being small. Since October, the output of major materials has remained low, with current output at 8.57 million tons, down by 64,000 tons month-on-month. Among them, rebar output is 2.01 million tons, down by 23,000 tons month-on-month, with the average rebar output over the past four weeks at 2.04 million tons, below the demand of around 2.2 million tons. Hot rolled output is 3.22 million tons, down by 14,000 tons month-on-month, slightly above the demand (3.156 million tons) [1] Demand - In terms of demand structure, domestic demand expectations remain weak; however, there is an expectation of policy support in Q4 (on the 18th, the Ministry of Finance announced the early issuance of the 2026 new local government debt limit). Exports remain high, and the recent price decline supports steel mill exports. Post-National Day, demand has recovered to 8.75 million tons, with non-major materials' demand remaining flat compared to September. Year-on-year, due to last year's high basis, achieving year-on-year growth in demand for major materials in Q4 is challenging. Current demand for major materials has increased by 1.39 million tons to 8.75 million tons, with rebar demand up by 730,000 tons to 2.2 million tons; hot rolled demand up by 246,000 tons to 3.155 million tons [2] Inventory - Major materials inventory decreased by 180,000 tons to 15.82 million tons; among them, rebar inventory decreased by 186,000 tons to 6.41 million tons; hot rolled inventory increased by 60,000 tons to 4.19 million tons. Considering that demand has recovered to 8.75 million tons, current output is below demand, and it is expected that the inventory center will maintain a year-on-year increase but show a month-on-month decline trend [2] Outlook - Post-holiday demand has recovered, but previous accumulation of plate materials necessitates production cuts by steel mills to alleviate inventory. The price decline has already priced in most supply surplus expectations; on the cost side, carbon element costs are supported, while iron ore may see some inventory accumulation due to declining iron water expectations, leading to a decrease in iron element costs. Steel prices have declined significantly, compressing steel mill profits. The January contracts for rebar and hot rolled are expected to stabilize around 3000 and 3200 yuan, respectively, transitioning to a range-bound consolidation trend. A wait-and-see approach is suggested for single positions. Considering coal mine production cuts and strong thermal coal, a strategy of long carbon and short iron arbitrage can be considered, with targets including long coking coal and short hot rolled operations. Given that hot rolled output remains high, the spread between hot rolled and rebar is expected to continue to converge. Until steel production and inventory clear, steel mill profits will continue to compress [3]