In the first quarter, global economic growth faced numerous challenges. Since the Trump administration took office, international trade tensions have continued to escalate, and global protectionism has intensified. Domestically, with shrinking demand in the construction sector, the economy is at a critical juncture of structural adjustment and transformation and upgrading, increasing the uncertainty surrounding economic growth. The steel market has experienced an unstable demand situation, with varying performance across different product categories and downstream industries. Last year, demand for sheet products performed relatively well, driven by increased exports of automobiles, home appliances, and other goods; however, demand for construction steel remained weak, affected by factors such as adjustments in the real estate market.

In mid-to-late March, the author conducted a survey of black-industry enterprises in the Beijing-Tianjin-Hebei region. According to market feedback, demand for rebar was moderate, while market supply remained relatively cautious, resulting in a relatively mild supply-demand imbalance. The resumption of electric furnace production in North China has been relatively restrained, whereas electric furnace output in East and South China has rebounded relatively quickly, with inventories remaining low. The plate sector has been less affected by the trade war, supported by policies such as the “Two New” initiatives; cold-rolled steel demand has performed better than hot-rolled steel. Currently, steel demand has yet to reach its peak, and the market is waiting for signs of peaking demand and an inflection point in molten iron production. In April, steel mills are generally still in the process of resuming production, and iron ore prices at the raw-material end remain supported. Supply of coking coal is under significant pressure, downstream coke inventories are relatively high, and coking coal lacks demand elasticity. The expected long-term contract price for Mongolian coal in the second quarter is likely to decline, and the cost center of warehouse receipts continues to shift downward, leaving coking coal relatively weak within the black industry chain. Over the past two years, plate supply has consistently remained high, while construction material production has declined significantly. This year, steel mills’ profit margins have improved markedly compared to last year; however, steel mills are being cautious and restrained in their production, avoiding blind capacity expansion. The National Development and Reform Commission has stated that crude steel production will continue to be regulated through 2025, promoting the reduction and restructuring of the steel industry. This year, there has been considerable discussion in the market about supply-side reform in the steel industry. From the perspective of reducing output alone, the general approach of regulating crude steel production over recent years appears set to continue. Against the backdrop of steel mills voluntarily cutting production, there may not be much need for external intervention or regulation. In the long term, the steel industry still faces overcapacity, putting pressure on the industry to eliminate excess capacity. Policy-driven capacity controls are also possible, but the actual implementation of such policies will still face numerous practical considerations.

Overall, the steel industry is currently experiencing a cycle characterized by declining overall demand and low profitability. In recent years, profit pressures have been transmitted upward along the value chain, and profit pressures on the furnace feedstock side are becoming increasingly evident. Overseas mines are entering a new round of capacity expansion; in addition to projects that have already begun ramping up production, new projects such as Simandou and Rio Tinto’s West Pilbara are coming online, leading to lower iron ore costs and mounting supply pressures. Domestically, the growth in scrap steel resources remains limited, industry standards are not yet fully established, and the industry’s bargaining power within the supply chain remains relatively weak, meaning the substitution effect of scrap steel on iron ore remains limited. As for coking coal, China continues to maintain a policy of ensuring stable supply and prices; Mongolia, meanwhile, is encouraging coal exports. Consequently, the pressure from newly added Mongolian coal supplies is expected to remain significant. We anticipate that long-term contract prices for Mongolian coal will continue to decline in the second quarter, and the loose supply situation for both coking coal and coke will persist. Looking at the entire industry chain, iron ore still enjoys relatively strong bargaining power within the supply chain, though its backwardation structure has clearly flattened out.

Currently, steel mill inventories and social inventories are lower than those of the same period last year, indicating an overall relatively healthy situation. Steel mill profits have rebounded, but production remains cautious, leading to a recovery in molten iron output. The market expects steel and molten iron production to peak and then decline in April. On the demand side, the ongoing escalation of the trade war is making it difficult for exports to maintain high levels. In the construction materials sector, newly started construction area has fallen below market expectations, and infrastructure demand will only improve once funding is secured. Meanwhile, the “Two New” policies are boosting manufacturing demand, resulting in relatively strong performance in this sector. Looking ahead to the second quarter, the overall price trend for steel is likely to remain weak and volatile, showing a pattern of “higher in the first half and lower in the second half.” Although downstream resumption of production and the anticipated peak-season demand in April may bring about a short-term rebound in demand, factors such as declining external demand and ample supply of furnace feedstock will continue to limit the room for price recovery. Investors need to closely monitor changes in steel mills’ production rhythms and policies aimed at reducing crude steel output.