Analysis of Factors Affecting Steel Prices
Date:2026-05-21
I. Demand-Side Factors
Downstream Industry Demand Structure: The two largest consumer sectors of steel are construction and manufacturing. The strength or weakness of demand in these sectors directly determines steel price trends. Recently, the market has shown a divergence between strong manufacturing and weak construction. In the construction sector, real estate development investment decreased by 11.2% year-on-year, leading to weak demand for building materials such as rebar, with prices falling by nearly 10% year-on-year. In the manufacturing sector, strong demand from industries such as automobiles, shipbuilding, and new energy provides strong support for the prices of hot-rolled coils and cold-rolled steel plates.
Macroeconomic Situation and Infrastructure Investment: A positive economic outlook and increased infrastructure projects will boost steel demand. As an economic "barometer" and "stabilizer," infrastructure investment plays a supporting role in steel prices. Recently, infrastructure investment increased by 8.9% year-on-year, providing some support for the demand for construction steel. However, the current focus of infrastructure investment has shifted to new infrastructure such as the "six networks" (referring to the internet, telecommunications, and internet infrastructure), and its effect on boosting steel prices may not be as strong as that of traditional projects.
Export Demand: Steel exports can effectively alleviate domestic supply pressure. When the price difference between domestic and international markets is large, increased exports will drive up domestic steel prices. Recently, steel exports in the first quarter decreased by 9.9% year-on-year. Meanwhile, trade protection measures in regions such as the EU (e.g., tightening import quotas) have brought uncertainty to future exports.
II. Supply-Side Factors
Steel Mill Production and Capacity: Increases or decreases in output directly change market supply. Self-regulation by enterprises to control production or policy-based production restrictions will reduce supply, thereby supporting prices. Recently, crude steel output in the first quarter decreased by 4.6% year-on-year, and enterprises' proactive production control has played a role in stabilizing prices. However, the industry as a whole still faces the core contradiction of "strong supply and weak demand," with total supply still exceeding demand.
Inventory Levels: Inventory acts as a "buffer" between supply and demand. High inventory levels indicate oversupply, putting pressure on prices; a rapid decline in inventory indicates improving demand, which is beneficial to prices. Recently, in late March, both steel mill inventory and social inventory increased by about 10% compared to the same period last year, with the destocking speed slower than expected, indicating that the recovery in downstream demand is insufficient to quickly digest existing steel inventory.
III. Cost-Side Factors
Raw Material Prices: The main raw materials for steel are iron ore and coking coal/coke. Rising raw material prices directly increase steel mill costs, thus supporting steel prices; conversely, lower raw material prices create a "cost advantage," opening up room for steel price declines. Recently, this has been a key point of divergence: iron ore prices have fluctuated at high levels. Despite high port inventories, factors such as geopolitical conflicts have kept prices at a high level of $105-110/ton, providing cost support for steel prices. Coking coal and coke prices initially fell and then rose. Previously, prices plummeted due to ample supply, but recently, costs have increased due to geopolitical conflicts. Overall, when the decline in raw material prices exceeds the decline in finished steel prices (such as in 2025), steel mills can obtain a cost advantage.
IV. Policy and Macroeconomic Environment Factors
National Macroeconomic Policies: Monetary and fiscal policies affect economic vitality and market liquidity, thus impacting aggregate demand. Infrastructure and real estate policies directly affect steel demand. The recent April Politburo meeting emphasized "making full use" of existing policies, dashing market expectations for large-scale new fiscal stimulus. This means that without strong demand-side stimulus, steel prices lack the momentum for a sustained upward trend.
Industry "Anti-Involution" and Environmental Policies: Regulating industry competition and controlling supply through capacity management and export license management helps stabilize prices. Recently, the steel industry's "anti-involution" policies have been progressing in an orderly manner, but the market's expectation of a "one-size-fits-all" production cut similar to that of 2016 has not materialized. The policy focus is on optimizing competitive order, rather than mandatory production reduction, which differs from previous market expectations of supply contraction.
International Trade Environment: Trade frictions (such as anti-dumping and carbon border taxes) will increase export costs, restrict steel exports, and increase domestic supply pressure. The recent EU Carbon Border Adjustment Mechanism (CBAM) and new quota policies are expected to increase the export costs of related Chinese products by about 7%, posing a long-term challenge to my country's steel and downstream product exports.
V. Market Sentiment and Macroeconomic Expectations
Market Expectations and Speculation: Market expectations for the future (such as judgments on policies and demand) will influence traders' stockpiling or selling behavior, thereby amplifying price fluctuations in the short term. Recently, the market had high expectations for supply contraction in anti-involution policies, forming a so-called "anti-involution bottom." However, as the implementation of policies has been slower than expected, this premium is fading, and prices are returning to fundamentals.
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