Beware! A sudden plunge, steel prices may drop below 3500?

The rebar market experienced a swift decline after touching 3820 on May 29th, and no signs of stabilization have been observed in its current trajectory. As we enter June, the combination of weak reality and strong expectations may more prominently manifest in the steel price trend. This is due to the arrival of the rainy season in the south, which has an impact on steel demand, as well as the poor fundamental conditions and significant pressures on iron ore, which may lead to negative feedback effects. How will steel prices evolve now? Will this correction lead to a trend of downward movement?

The logic of negative feedback can only be determined through a comprehensive evaluation of multiple factors. Firstly, let's examine the raw materials. From the fundamental perspective of iron ore, the current market is characterized by strong demand and supply. The arrival of iron ore in May is on the rise, and it is expected to maintain a high volume in June as well.The production of pig iron on the demand side still has an upward trajectory. Currently, the inventory of iron ore is at a relatively high level.

From the materialization perspective, the demand for finished products has seen a corresponding decline, and the previously gradual pace of inventory reduction has been disrupted. Although restrictive policies have been introduced, the production of finished products has not been affected.If the current situation persists, leading to a slow depletion of inventory and entering a cycle of accumulating stock, the likelihood of negative feedback forming is high.But before the contradictions are fully exacerbated, the raw material end still has some support due to the output of molten iron and the overall favorable macro conditions.

Two key points are the extent of the impact from the off-season demand downturn, or in other words, whether there will be a situation of "not slow during the off-season"? Currently, factors supporting the transition into the off-season may include the following: one is the influence of the southern plum rain season; two is the weakening fundamental situation of finished products, with demand decreasing and the gradual state of inventory reduction being disrupted. However, there are also numerous factors that can support a rebound in June, with the most significant being that the 10 trillion yuan in national bonds has reached a project start-up rate of 70% so far, and all projects are required to be underway by the end of June, which will boost demand.The China Caixin Manufacturing PMI for May 2024, released on June 3rd, stood at 51.7, up 0.3 percentage points from April, marking the highest level since July 2022, indicating a faster expansion in manufacturing business operations.Demand for steel has also been bolstered. The issue of national bonds in May saw a tripling of issuance compared to April, indicating a favorable financial situation for the real economy. Additionally, from a century-old construction company, it was learned that the capital availability rate for construction sites was 63.32%, up 0.26 percentage points from the previous month. This suggests that the self-demand of the real economy is on an improving track.

Overall, there is currently a demand slowdown and expectations of negative feedback from the raw material side, but the contradictions have not been exacerbated. Although there are corresponding data indicating a supportive trend at present,However, we are currently unable to achieve the previous macro expectations, but the positive support is now coming from the demand side, and we cannot completely ignore its presence. Therefore, I personally believe that we should view the current market with the dialectical materialist perspective and act according to the facts. As for the trend in June, it is currently expected to be initially downward before picking up.