Impact of the Transition from Old to New National Standards for Rebar on the Market in Stages
Jul 19, 2024
Mysteel News: Since the release of the new national standard for rebar on June 25, the market price has fluctuated significantly, and some steel mills have successively issued announcements for the transition of hot-rolled ribbed rebar products from old to new national standards.
As of now, according to incomplete statistics by Mysteel, most steel mills will start to implement the production of rebar according to the new national standard in August, with a few completing the transition from old to new national standard production at the end of July or the beginning of September. At the same time, some warehouses in the East China region have also issued announcements regarding the deadline for the storage of old national standard products. Against the backdrop of continuous poor performance in rigid demand and hindered storage, this has further exacerbated market participants' concerns about the elimination of old national standard rebar. Recently, the mainstream futures and spot warehouse quotations in some markets in East China have shown a significant decline. The author analyzes the impact on the current market price from multiple angles of the current transition from old to new national standards.
The transition from old to new national standards for rebar was announced on June 25 and will be implemented on September 25, with a three-month buffer period. According to the weekly steel data research results of Mysteel, as of now, the national rebar inventory is 7.7057 million tons. In the past years, rebar has faced seasonal inventory pressure in July, August, and September. Under the background of weak demand, market concerns have further intensified. Overall, the pressure of old national standard rebar is concentrated in the East China region.
Assumptions for the transition of new standard rebar production and the elimination of old national standard rebar inventory (ideal calculation):
Assumption 1: At the beginning of August, 1/4 of the new standard rebar production is switched, and the apparent consumption is recognized as the recent average level. After synchronous calculation, the cycle required for the elimination of old national standard rebar inventory is 13 weeks.
Assumption 2: At the beginning of August, 1/3 of the new standard rebar production is switched, and the apparent consumption is recognized as the recent average level. After synchronous calculation, the cycle required for the elimination of old national standard rebar inventory is 10 weeks.
Assumption 3: At the beginning of August, 1/2 of the new standard rebar production is switched, and the apparent consumption is recognized as the recent average level. After synchronous calculation, the cycle required for the elimination of old national standard rebar inventory is 6 and a half weeks.
Assumption 4: At the beginning of August, 3/4 of the new standard rebar production is switched, and the apparent consumption is recognized as the recent average level. After synchronous calculation, the cycle required for the elimination of old national standard rebar inventory is 4 and a half weeks.
The above calculations only consider fewer variables, with the premise that the overall output of rebar has not changed significantly, the apparent consumption basically maintains the recent level of 2.33 million tons per week, and the market is fully committed to eliminating old national standard rebar. It can be seen that before the implementation of the new national standard for rebar, the less old national standard rebar is put into the market, that is, the earlier the steel mill switches to the implementation of the new national standard, the more conducive it is to inventory elimination. Due to the dynamic nature of the date when steel mills switch to the new national standard rebar, more than half of the steel mills have completed the transition to the new national standard in August, and the old national standard is successfully eliminated before September 25.
Looking back at the last adjustment of the rebar standard in 2018, there was a 9-month buffer period from the date of the new national standard release to the date of implementation, and the circulation attributes of the rebar produced before the implementation date had not changed fundamentally. The pace of elimination of old national standard rebar inventory was relatively slow, with fewer hard constraints and emotional rendering. This round of standards has changed from national recommended standards to mandatory standards, and the market has caused concerns about the circulation attributes of old national standard rebar. The current market concern has not ended, and the price still has the possibility of falling. On the one hand, the current spot merchants urgently need to replace the old national standard rebar with the new national standard rebar. On the other hand, it is necessary to accelerate the storage of old national standard resources. The demand in the short term is difficult to improve significantly, and it can only accelerate the radiation to the surrounding market by falling prices, squeezing the resource share of the surrounding market, and leading the decline in the surrounding market, which is conducive to the elimination of old national standard rebar resources.
Looking back at the last transition from old to new national standards for rebar steel, the exchange issued an announcement one month before the implementation of the new standard rebar. From November 1, 2018, the old national standard rebar was not allowed to be used to make warehouse receipts for delivery. The newly registered warehouse receipts were made according to the new national standard rebar for warehouse receipt delivery, but the old national standard rebar that had been made into warehouse receipts could continue to be transferred and delivered. Based on this experience, it is inferred that the rebar steel futures contract for October 2024 will be registered according to the new national standard, and the old national standard cannot be registered for warehouse receipts, but the warehouse receipts that have been registered can be delivered, and this point has been clearly bet on the market.
At the time when the new national standard for rebar steel was promulgated, the price difference between September and October rebar widened. In mid-July, as the market's panic selling sentiment intensified, the spot price led the futures price to decline sharply, and the near-month contract fell sharply, with the September-October contract price difference reaching 184, the lowest level in recent years. It is not difficult to find that the core logic of this round of accelerated decline is the shrinkage of demand and poor expectations. Under such a background, the pressure of the transition from old to new national standards is relatively large, and the panic selling sentiment of the futures and spot warehouses that have been stored for a long time has intensified. With the announcement of the deadline for the storage of futures and spot warehouses in some markets in East China, the market sentiment has been shaken, and the price has accelerated the decline. However, the overall supply and demand structure in the north is relatively good, and the impact on prices is relatively small, leading to a further expansion of the price difference between the north and the south.
According to the current rhythm of the steel mill's transition from old to new national standard rebar production, most will be concentrated in August. In late July, the supply pressure of old national standard rebar is not reduced, and the demand is weak in the short term. Under the condition that the circulation attributes of old national standard rebar are not clearly defined, the panic selling sentiment is still fermenting in the concentrated areas of futures and spot warehouses.
The old national standard
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