After the holiday, steel prices are expected to rise, with industry insiders expressing optimism about the trend. As raw material costs gradually increase and steel mills raise their ex-factory prices sharply, businesses are showing a more confident attitude. This has led to expectations of a strong start for the market post-holiday. However, while many in the industry are hopeful, concerns remain about how long and how high the price increases will last.
The traditional Chinese "opener" concept plays a significant role in shaping trader behavior. It's common for prices to rise after the market reopens, especially at the start of the year. Data from 2001 to 2012 shows that, except for 2009, steel prices rose after the Spring Festival in nine out of ten years, with a success rate of over 90% for post-holiday price increases.
This pattern is not just based on tradition. Rising raw material costs also contribute to the upward trend. The price of iron ore has been affected by weather disruptions in the southern hemisphere, particularly in Australia and Brazil, which have impacted mineral shipments and supported higher ore prices. Additionally, current steel production relies heavily on high-cost ores from previous periods.
From December 2012 to early January 2013, iron ore prices surged dramatically. At one point, 61.5% grade Australian PB powder reached $157 per ton, up from a low of $88 per ton in 2012 — a rise of 78.4%. Although prices later softened as the market became more rational, they rebounded again due to supply constraints and pre-holiday stockpiling. As of February 4, the price of 61.5% grade Australian PB meal stood at $151.5 per ton, a 72.16% increase from the 2012 low.
With rising production costs, major steelmakers like Baosteel, Wuhan Iron & Steel, and Shagang have significantly increased their ex-factory prices, pushing up the cost for end-users. This mismatch between mill pricing and market prices provides a strong foundation for further price increases in the spot market after the holiday.
Other factors, such as a mild economic recovery, the resumption of construction projects, and a rise in international steel prices, are also supporting the post-holiday market. Despite these positive signs, traders should remain cautious about potential risks.
Post-holiday demand may not keep up with the pace of price increases. If demand remains strong, traders are likely to continue raising prices. However, if demand is weak, companies may be forced to push sales aggressively, potentially leading to oversupply and downward pressure on prices.
Recent data shows a sharp increase in domestic construction steel inventories. If this stock isn't absorbed quickly after the holidays, it could create significant market pressure. For example, on February 1st, the inventory of building materials in 35 cities reached 8.8319 million tons, up 21.83% from January 4th’s level of 1.5824 million tons.
In addition to demand-side challenges, cost-driven price hikes by steel mills could lead to aggressive resource utilization to maximize profits. If prices spike too quickly, the market might face a situation where supply exceeds demand, causing steel prices to face resistance.
While favorable factors suggest a strong “opener†after the holiday, whether the price can break through depends largely on the strength of downstream demand.
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