Since July, the rebar futures market has experienced a volatile upward trend, with the price of the main contract 2010 once reaching a new high of 3,816 yuan per ton. Unlike the previous rally from April to June, which was driven by genuine demand and led to higher futures prices, this round of rebound is more attributable to macroeconomic factors and expectations of strong seasonal demand.
　　On the one hand, this round of rebound in rebar prices has been synchronized with the performance of China’s stock market and other commodities such as non-ferrous metals. On the other hand, during this rebound, the spot price increase of rebar has noticeably lagged behind that of its futures contracts. As of the end of July, the most actively traded contract had already shown a slight premium over the spot price for three consecutive trading days. Regarding the future trend, the author believes that in the short term, there is a risk of adjustment driven by diverging expectations; however, in the medium term, the upward trend should remain unchanged.
　　 The risk of short-term adjustments in rebar prices remains.
　　Although the plum rain season has already ended in East China, several southern provinces are still affected by flooding, and after the rainy season concludes, they will also face the impact of high temperatures. In July, nationwide transactions of construction steel totaled 210,200 tons, down 33,000 tons from the previous month. The operating rate of cement mills has declined for six consecutive weeks since June, but began to show a slight rebound in late July, reaching a latest figure of 60.49%, a decrease of 0.14 percentage points from the end of June. These data all indicate that current demand in the construction industry remains relatively weak.
　　On the supply side, given that steel mills are still enjoying certain profit margins at present, supply is likely to remain relatively high in the short term. Last week (July 27–31), blast furnace capacity utilization rose by 1.43 percentage points from the previous week to 94.5%, and daily average molten iron production increased by 38,000 tons from the previous week to 2.5155 million tons—both reaching their highest levels for the year so far. In addition, the recent influx of overseas resources has also become a major factor influencing steel supply. In June, China’s imports of steel billets totaled 2.484 million tons, representing a year-on-year increase of 2,237.4%. Moreover, judging from the current price differential between domestic and overseas steel billets, there remains strong incentive for further inflows of overseas resources. These imported steel billets will gradually be converted into finished steel products, thereby intensifying short-term supply pressures in the market.
　　Recently, the gap between demand and supply for rebar has remained below zero for nine consecutive weeks. This indicates that, over the past two months, rebar has consistently been in a state of oversupply. Currently, the most active rebar contract has been trading at a premium to spot prices in East China for three consecutive trading days, and the price spread between the East China spot price and the North China spot price has narrowed to within 100 yuan per ton. This suggests that the anticipated increase in demand for the rebar futures contract has already materialized. For rebar futures prices to continue rising in the future, they will need to be supported by a genuine recovery in actual demand. Once a time lag emerges between the recovery of actual demand and the persistence of demand expectations, the possibility of a temporary adjustment cannot be ruled out.
　 　The mid-term supply has entered a stage of reaching its peak.
　　In the medium term, steel supply has already approached its peak level.
　　Currently, blast furnace capacity utilization has remained above 90% for 11 consecutive weeks. Theoretically, there is very limited room for further increases in operating rates. Meanwhile, the price spread between high-grade and low-grade iron ore has continued to widen recently: the price differential between PB fines and ultra-fine fines has expanded from 119 yuan/ton at the beginning of July to 169 yuan/ton, while the price differential between PB ore and blended ore has also widened from -21 yuan/ton at the beginning of July to 53 yuan/ton. Given that steel mill profits are trending downward, steel mills lack the incentive to significantly increase their use of high-grade ore in order to boost production. As for adding scrap steel, since the current price of scrap steel does not offer a cost-effective advantage compared to molten iron, and given that the amount of scrap steel added has already increased substantially in the previous period, there is now only a 2- to 3-percentage-point margin for further growth. Therefore, the scope for increasing production by adding scrap steel is also quite limited.
　　In terms of short-process steelmaking, since July, product prices at short-process steel mills have been hovering around the breakeven point, with some regions already operating at a loss. Moreover, there is limited room for further supply growth. Last week, the operating rate and capacity utilization rate of 71 electric arc furnace enterprises nationwide were 72.66% and 58.54%, respectively—down 1.78 and 4.68 percentage points from the end of June. Additionally, from a product-specific perspective, as profits from hot-rolled coil have surpassed those from rebar, in recent weeks there has been a noticeable shift in molten iron production from rebar toward hot-rolled coil, which implicitly signals that long-process rebar production may have reached its peak.
　 　Despite the backdrop of economic recovery, demand for rebar remains resilient.
　　Judging from the economic data for the first half of the year that have already been released, the expectation of “strong infrastructure investment plus stable real estate” is further strengthening in the second half of the year. Against this backdrop, the upward trend in construction steel prices throughout the second half is unlikely to change.
　　In the first half of this year, domestic infrastructure investment fell by 0.07% year-on-year, improving by 3.24 percentage points compared to the period from January to May. Specifically, in June alone, infrastructure investment rose by 8.36% year-on-year, but declined by 2.5 percentage points month-on-month. The slight decline in infrastructure investment in June was mainly attributable to the impact of flooding disasters in southern China and tight funding conditions during the mid-year period.
　　However, looking ahead to the second half of the year, the author remains confident that infrastructure investment will continue to grow steadily. On the one hand, the fiscal policies introduced earlier are gradually being implemented; recently, the Ministry of Finance once again allocated a new batch of local special bonds totaling 1.26 trillion yuan to provincial finance departments. On the other hand, in early July, the National Development and Reform Commission announced that it would prioritize the construction of 150 major water conservancy projects from 2020 to 2022, with a total investment of approximately 1.29 trillion yuan. As funding and projects begin to materialize, infrastructure investment is expected to gain renewed momentum in the second half of this year. Moreover, currently, excavator sales have maintained monthly growth rates above 60% for three consecutive months, and the number of operating hours for excavators has also been on a positive growth trajectory for three consecutive months. Consequently, infrastructure investment is likely to continue improving in the period ahead.
　　In the real estate sector, in the first half of this year, domestic real estate investment rose by 1.9% year-on-year, marking the first positive growth rate for the year. Indicators such as sales of commercial residential properties, new construction starts, and construction area under way also showed improvement. In June alone, the area of newly started construction increased by 8.9% year-on-year, up 6.4 percentage points from the previous month. Given the continued recovery in land acquisition areas over recent months and the ongoing improvement in funding sources for real estate developers, it is expected that the area of newly started construction will not decline significantly before the fourth quarter. Moreover, in the first half of the year, the existing construction area under way increased by 2.6% year-on-year, with the growth rate rising by 0.3 percentage points compared to the first five months, providing some support for future real estate investment. However, at the policy level, the "housing is for living, not for speculation" guiding principle remains unchanged. Since July, several cities—including Shenzhen, Dongguan, and Ningbo—have successively tightened their regulatory policies. Additionally, the real estate work symposium held at the end of July emphasized the importance of effectively implementing the prudential management system for real estate finance and preventing funds from illegally flowing into the real estate market. It is anticipated that real estate credit policies may become somewhat tighter in the coming period, which will increase uncertainty in commercial residential property sales.
　　Overall, since July, rebar futures have rebounded primarily driven by positive expectations regarding macroeconomic factors and stronger demand during the peak season. However, the underlying fundamentals remain relatively weak at present. Looking ahead in the medium term, given the further strengthening of expectations for “strong infrastructure investment plus stable real estate development” in the second half of the year—and considering that rebar supply has reached a temporary peak—rebar prices are expected to continue their upward trend in the second half. Yet, in the short term, risks of adjustment due to expectation gaps still persist: First, affected by the rainy season, high temperatures, and flooding disasters, coupled with persistently high supply levels, the trend of rising inventories of construction steel products is likely to continue in the near term; second, the current price of the main contract has already priced in the anticipated increase in demand. For prices to sustain their upward movement in the future, actual demand must begin to recover. Should the actual recovery in demand diverge from expectations, there is a significant likelihood of a temporary price correction.