New round of price rally for seamless steel pipes is coming strongly

Seamless steel pipe prices underwent corrective adjustments following the previous sharp rally.Hit by successive cuts in upstream steel billet prices and a steep drop in futures, the whole market moved lower at the start of last week.Prices of some varieties once fell back to levels before the earlier price surge.

However, boosted by positive news from the Two Sessions, rising capital markets and sharp increases in April’s new pricing policies for seamless pipes, the domestic market reversed quickly starting from Wednesday and staged a clear V-shaped recovery.This marked the third round of price gains for seamless steel pipes after the Spring Festival.

Despite the violent ups and downs recently, prices of all types of seamless pipes across regions remain far higher than the earlier bottom.Short-term adjustments are still necessary.For varieties and markets that have not corrected much after surging, price falls help release market risks and support healthy market trends in the future.

Steel billet prices plunged starting the previous weekend.Early last week, billet prices once dropped below the pre-surge level of 2,650 yuan to 2,600 yuan.Seamless steel pipe prices also neared the lows before the rally, squeezing out market bubbles formed during the earlier price surge.

After the Two Sessions concluded, policy signals became clearer.Both monetary and fiscal policies maintained a relatively loose tone, supporting market sentiment after seamless steel pipes overcorrected.

Globally, the European Central Bank launched further monetary easing, while the Federal Reserve put interest rate hikes on hold, lifting overall market sentiment.Commodities rallied across the board.The rebound in forward markets significantly drove spot prices upward.

Meanwhile, Tianjin Iron & Steel released its April guiding prices for seamless steel pipes, with most varieties raised by over 400 yuan.It acted as the trigger for another market upturn.Major manufacturers including Angang also lifted April price policies, injecting fresh momentum for price increases.

Steel billet prices strengthened from Wednesday, jumping a total of 160 yuan between Wednesday and Friday.Domestic seamless steel pipe prices completed a full V-shaped reversal during the week.

Industry insiders commented on this third rally of the year.Compared with the previous two surges, overall downstream demand has basically recovered.Merchants and end-users entered the market earlier to purchase on expectations, starting buying from the early stage of price increases.Trading volumes rose substantially, helping stabilize and sustain the upward trend.

Costs are climbing, and the Platts iron ore index once again tested the 60 US dollar threshold.In addition, as the Tangshan International Horticultural Exposition approaches, market expectations for blast furnace output cuts and suspensions at local steel mills keep growing.

On balance, finished steel prices face upward pressure.This round of gains for seamless steel pipes rests on solid foundations, obviously stronger than the previous two rallies, and the upward cycle is expected to last longer.Therefore, the market maintains a bullish outlook for this week.

At the beginning of March, we published analysis predicting rising seamless steel pipe prices.Early last week, spot prices surged sharply; some varieties rose more than 600 yuan per ton within two to three days.Market sentiment turned extremely optimistic.We repeatedly noted that the rally exceeded expectations and corrections were inevitable.Yet the pullback would not be a one-way decline; volatility would persist.Spot price movement this week basically validated this judgment.

Particularly on Thursday and Friday, Tangshan steel billets rebounded first as steel futures neared limit-up levels several times.Spot prices advanced again, and many traders held back shipments on expectations.

Over the weekend, Tangshan rolled out output restriction policies linked to the horticultural expo alongside stricter environmental inspections, further reinforcing bullish sentiment.

Many market participants asked whether they should build inventories over the weekend.A large number of traders felt confused by the rapid price rally, which disrupted their original operation plans.

Why did seamless steel pipe prices rebound after falling?We believe supply and demand remain the core factor.While domestic supply gradually expands, downstream demand, especially from infrastructure and real estate, is improving.

New housing construction area in China rose 13.7% year-on-year from January to February, far exceeding market forecasts.Booming housing sales improved developers’ cash flow.Real estate steel demand staged a phased strong recovery, naturally lifting market expectations for seamless steel pipes.

How will the domestic supply-demand landscape evolve later?Will output growth from Tangshan steel mills under production curbs continuously fail to match demand growth?

In our view, market expectations overstate the impact of Tangshan production limits, which can be seen from official documents.Output restrictions will be intermittent.Even if strictly enforced during the expo, the total reduction in crude steel supply will only be 5 to 6 million tons spread across seven months.

Faced with environmental rectification requirements, profitable steel mills will invest in environmental facilities.If short-term upgrades prove difficult, factories will only bear extra costs from differential electricity prices.

Demand cannot sustain the heating momentum seen in March.In the medium and long term, supply growth will gradually catch up with rising demand.

Regarding steel mill profits:Most steel enterprises suffered heavy losses and tight cash flow in 2016.However, starting this year, especially in March, cash profits of 300 yuan per ton have become common.Under such profit conditions, pushing supply-side reforms purely via market forces will prove difficult.Some loss-making state-owned enterprises bear heavy social responsibilities, slowing capacity elimination progress.As a result, supply-side reform will be delayed.

In fact, many blast furnaces have resumed operation after the sharp rise in seamless pipe prices recently.It will be hard to reverse fundamental market conditions only relying on supply-side reform.

Turning to the recent rebound:Although spot prices recovered quickly, they lagged the gains in steel futures.Iron ore prices also rose faster than finished steel prices.This shows the market doubts the sustainability of high steel mill profits.To maximize earnings, steel mills will choose to expand output.As a result, domestic production enthusiasm will further rise until the supply-demand balance breaks down.

We tend to believe seamless steel pipe prices will rise at the start of next week, yet gains will be more rational.Merchants will learn lessons from the previous rally; instead of hoarding goods, they will arrange shipments in a planned way.

This price rebound is merely one phase of fluctuations following the prior sharp rally, not the end of the correction.The peak of this round cannot match the previous high, and another pullback can be anticipated.The current upward cycle will also be relatively short.

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