April's black sector may return to fundamentals — Donghai Futures April Monthly Investment Strategy for Ferrous Metals

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Liu Huifeng

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Phone: 021-68751490

Email: Liuhf@qh168.com.cn

Key Takeaways:

• April demand recovery may fall short of expectations: Although real demand in March improved marginally, it remains weak. For the five major steel product categories, year-on-year apparent consumption of steel fell. Inventory has declined for two consecutive weeks, but the pace of destocking is clearly slower than in the same period in previous years. Also, based on the situation we understand, downstream expectations for steel demand in April and May are still relatively pessimistic. Therefore, the recovery in steel demand in April and May is very likely to come in below expectations.
• Supply may rise in phases, but the top for the first half is already close: For supply over the next 1–2 months, steel mills’ profits and policy changes remain the main factors. After April, the probability of further tightening of production curbs is not high. In addition, steel mills are still operating with thin profits, so steel supply will still rise in phases in the short term. But according to historical data, a high point for the first half will appear from late April to early May. If costs continue to rise and steel mills move into losses, the supply peak could arrive earlier.
• Be mindful of the risk of a phased pullback in iron ore: After April, there is room for blast furnace hot metal daily output to rebound, but based on seasonal data, the top for the first half may be seen from late April to early May. If steel mills enter a loss-making state, the hot metal output peak may come earlier. Meanwhile, supply will gradually rebound after the second quarter. Since March, the global seaborne iron ore shipment volume has risen for two consecutive weeks. If you also consider high port inventories, steel mills’ willingness to restock iron ore remains not very strong. Therefore, in April, be mindful of the risk of a phased downturn.
• Conclusion: In March, the steel market moved up in a volatile manner under the logic of cost support and policy expectations. After entering April, the market’s rebound response to the situation in the Middle East may gradually become less pronounced, and the industry will then return to a fundamentals-driven logic. The market is still in a peak consumption season for steel, but actual demand is showing results below expectations, and after late April demand will weaken on the margin. At the same time, because steel mills are still earning thin profits, supply will continue to rebound in phases. Moreover, if costs rise further and transmission to downstream remains smooth, steel mills may move back into losses, so there are risks of phase-based negative feedback in the industrial chain.
• Trading Suggestions: In April, the black commodity complex faces the risk of a phased pullback. The main rebar contract is around 3200, hot-rolled coil is around 3350, and iron ore is around 830, with some pressure. The depth of any adjustment depends on how much iron ore adjusts, but the probability of breaking to new lows is not high.
• Risk Factors: Crude oil prices continue to surge; steel demand exceeds expectations

1.3 Overview of the Black Sector’s Price Action

In March, the black sector overall showed a pattern of volatile upward movement, with raw materials performing stronger than finished steel products. As of March 24, the main rebar and hot-rolled coil contracts closed at 3145 yuan/ton and 3315 yuan/ton, respectively—up 78 yuan/ton and 109 yuan/ton versus late February, with gains of 2.5% and 3.3%, respectively. The main iron ore contract closed at 824 yuan/ton, up 73.5 yuan/ton versus late February, a gain of 9.8%. The ratio of rebar to iron ore was 4.03, down 0.26 versus late February.

Figure 1  Trend in the rebar futures-to-spot spread

Source: Donghai Futures Research Institute, ifind

Figure 2  Trend in the iron ore futures-to-spot spread

Source: Donghai Futures Research Institute, ifind

After March, the improvement in steel demand is not obvious. As of March 20, the year-on-year decline in apparent consumption for steel across the five major product categories still stands at 384.7 thousand tons. Therefore, this round of rebound in the black complex is mainly due to two factors: policy expectations ahead of the two sessions and the escalation of the Middle East situation, plus crude oil price rebounds strengthening cost support. It can be seen that the timing when this rebound began is right around the period before the two sessions. Meanwhile, throughout mid-March, the Middle East situation continued to escalate; Brent crude oil hit a peak around 120 USD/barrel, which also drove a rebound in furnace-feeding material prices such as iron ore and coking coal, further supporting steel prices. The strength of iron ore prices, besides being driven by the crude oil rebound, is also importantly due to BHP’s partial bans on iron ore sales.

2. Demand: Recovery or falling short of expectations

After the Spring Festival holiday, steel’s real-world demand indeed improved marginally, but overall it remains weak. The latest apparent consumption of steel across the five major product categories is 8.8797 million tons, down 3.181 million tons year over year. Although inventory declined for two consecutive weeks, the inventory destocking speed is still at a low level versus the same period last year. Based on past historical data, the top of steel demand for the first half of each year generally appears in late April to early May. And according to the situation we understand, downstream expectations for steel demand in April and May remain relatively pessimistic. Therefore, the recovery in steel demand in April and May is very likely to fall short of expectations.

In addition to real demand, as mentioned earlier, the rebound in the March steel market mainly follows the logic of expectations plus cost-driven support. This leads to continued narrowing of the basis on the trading screen, locking in some long positions for hedges between futures and spot. As of end-March, Hangzhou rebar inventory reached 1.508 million tons, up 0.379 million tons year over year; Tangshan steel billet inventory was 2.5023 million tons, up 1.4629 million tons year over year. Therefore, once the basis on the screen recovers somewhat, this volume may also contribute to chase-ups and sell-offs. In addition, after entering April, nearby contracts will gradually switch to spot and delivery logic. Combined with the current steel demand situation, we expect this factor will also exert downward pressure on steel demand.

Figure 3  Seasonal trend of inventories for steel’s five major product categories

Figure 4  Seasonal trend of apparent consumption for steel’s five major product categories

Source: Donghai Futures Research Institute, Mysteel

Looking at specific industries, investment growth rates in real estate, infrastructure, and manufacturing have all rebounded to some extent. Except for real estate investment, the investment growth rates for the other industries have turned positive. In January–February, the year-on-year declines in the sales area and sales value of commodity housing were 13.5% and 20.2%, respectively, narrowing the gaps by 3.06 and 4.03 percentage points compared with December. After Shanghai’s new policy on 2.25, high-frequency real estate sales data continued to improve. As of the week of March 22, the sales area of commodity housing across the country’s 30 major and large cities was 2.0884 million square meters, rebounding on a week-over-week basis for two consecutive weeks. However, data on the supply side remains weak: the declines in both starts and completions area continue to expand, indicating that under greater pressure on sales collections, companies’ investment willingness remains weak. The industry’s focus is still mainly on ensuring timely delivery and destocking of existing inventory. The widening in the decline rates of earnest money and prepayments as well as mortgage loans in the January–February breakdown of real estate funding sources by 5.3 and 21.4 percentage points compared with full-year 2025 also indirectly proves this conclusion. In the future, policies to stabilize real estate will continue to be strengthened. Under policy support, first-tier cities have already shown signs of stabilization. Whether this “point-to-area” transmission effect can spread to more second- and third-tier cities will be a key factor determining the direction of the real estate market for the whole year. We expect that in the second quarter of 2026, after bottoming and consolidating, the probability of a gradual halt in the downtrend and stabilization will be relatively high. However, real estate policy still focuses mainly on destocking, so the stimulus effect on building materials consumption is expected to be limited.

For infrastructure, in January–February, broad infrastructure investment grew 9.76% year over year, with the growth rate rebounding by 11.24 percentage points versus full-year 2025. In sub-items, the growth rates of transportation and water conservancy facility investment—previously dragging down infrastructure investment growth—have shown clear rebounds. With this year’s Spring Festival holiday coming later, it reduces constraints caused by workers returning home early; infrastructure projects have been advancing steadily across regions. This is the main reason infrastructure investment exceeded expectations in January–February. Indicators such as asphalt plant operating rate and concrete capacity utilization are also higher than the levels in the same period of previous years. In 2026, the issuance target for local special-purpose bonds will continue to be maintained at 4.4 trillion yuan, and 800 billion yuan of ultra-long-term special treasury bonds will be arranged to support the construction of “two major” projects, along with 800 billion yuan of new policy-based financial instruments. Additionally, as this is the opening year of the 15th Five-Year Plan period, the bottom-support role of infrastructure investment will still exist. Although the PMIs for the construction industry saw some decline in January–February, this falls under normal seasonal factors; and after the Spring Festival holiday, concrete capacity utilization has rebounded for four consecutive weeks. As policies gradually take effect, optimization of the issuance schedule for special-purpose bonds, and improvements in the efficiency of capital disbursement, after the second quarter infrastructure investment is likely to continue to rebound steadily.

Figure 5  Changes in investment growth rates across three major downstream steel industries

Source: Donghai Futures Research Institute, Mysteel

Figure 6  Changes in key indicators for real estate

Source: Donghai Futures Research Institute, Mysteel

For manufacturing, in January–February, domestic manufacturing investment rose 3.1% year over year, with the growth rate rebounding by 2.5 percentage points versus full-year 2025. The weakening of drag from price factors and the resilience of exports are the main factors supporting the rebound in manufacturing investment. In January–February, PPI cumulative year-on-year declined by 1.2%, narrowing by 0.2 percentage points compared with January. Since August 2025, PPI cumulative year-on-year has shown a trend of narrowing declines month by month. Export performance also slightly exceeded expectations. In January–February, total export value increased 21.8% year over year, including electrical and mechanical product exports up 27.1% year over year. By contrast, domestic demand performed relatively weak: in January–February, the year-on-year growth rate of retail sales of consumer goods fell by 0.8 percentage points compared with full-year 2025. Sub-items such as automobiles and home appliances also saw declines to varying degrees. Meanwhile, in 2026, the two sessions will determine an additional 450 billion yuan of ultra-long-term special treasury bonds to fund the “two new” policies, and establish 100 billion yuan of fiscal-financial coordinated funds to expand domestic demand. This will promote growth in later-period consumption of automobiles and home appliances and directly benefit steel used by the manufacturing industry. For external demand, Korea’s exports, as a leading indicator, grew 28.71% year over year in February; in the first 20 days of March, the year-on-year growth rate exceeded 50%. The manufacturing PMI of developed economies also rebounded to varying degrees. So, there is support for manufacturing investment from exports. In addition, in December last year, industrial enterprise profits’ year-on-year growth rate rebounded from -13.1% in November to 5.3%. This data typically leads manufacturing investment by about 8–12 months. If you consider the industrial development opportunities at the start of the “15th Five-Year Plan” period, companies’ investment willingness is expected to improve. Manufacturing investment resilience may continue to hold.

3. Supply: Rebound in phases, but the top for the first half is near

In January–February, domestic crude steel output was 160 million tons, down 3.6% year over year (or 59.8 million tons). Daily average output was 27.176 million tons, up 5.182 million tons quarter/period over period. Among the increase in crude steel output in January–February, the contribution from scrap steel improved; the iron-to-steel ratio for the month was 0.86, down by about 3 percentage points versus December 2025. Also, in January–February, the average utilization rate for EAF steel capacity was about 10 percentage points higher than the same period last year. Given that in March, daily average crude steel output in early and mid-month rebounded month over month by 1.9 million tons, and that high-frequency hot metal daily output remains at a high level, there is a high probability that crude daily output according to the NBS statistics definition will continue to rebound in March.

Figure 7  Seasonal trend in average daily crude steel output

Source: Donghai Futures Research Institute, Mysteel

Figure 8  Average daily hot metal output and blast furnace capacity utilization rate

Source: Donghai Futures Research Institute, Mysteel

For supply over the next 1–2 months, steel mill profits and policy changes remain key factors. During early March when the two sessions were held, steel mills in the northern region imposed phased production curbs; hot metal daily output fell for two consecutive weeks, with a cumulative decline of more than 1.2 million tons. But in the two weeks after the meeting ended, it rebounded steadily, and the probability of further policy tightening in the near term is not high. As for profits, steel mills are currently in a state of thin profitability. For long-process rebar, profits are 34 yuan/ton; among 247 steel mills nationwide, the proportion of profitable mills is 43%. So, in the short term, steel supply still has room to increase. But here are two points to note: first, from historical data, every year from late April to early May, steel mills’ blast furnace operating rate reaches the top for the first half. Second, under the logic of rebound driven by cost escalation, steel mill profits continue to narrow; if the Middle East situation further escalates and leads to higher steel costs, it may cause steel mills to fall back into losses. This would then bring the hot metal production peak earlier and trigger negative feedback in the industrial chain.

Figure 9  Seasonal trend in profits of long-process rebar

Source: Donghai Futures Research Institute, Mysteel

Figure 10  Seasonal trend in output of short-process rebar

Source: Donghai Futures Research Institute, Mysteel

After March, the output of EAF steel at blast furnaces’ side gradually rebounds, and this trend is likely to persist in the short term. But short-process output will also enter the top region from late April to early May. The main reason is that due to recent cost increases, EAF steel profits have narrowed significantly. Valley power profits have been compressed from 50.6 yuan/ton before the Spring Festival to 25 yuan/ton, and further compression cannot be ruled out. In addition, recent performance of leading indicators reflecting EAF steel supply has also been relatively weak. As of March 26, although the nationwide scrap steel daily arrivals of 300 steel mills rebounded by 0.44 million tons month over month, they still declined by 0.248 million tons year over year; therefore, the space for further rebound in short-process output is also not large.

4. Iron Ore: Pay attention to phased pullback risks

Since March, iron ore prices have been strong. The benchmark contract 2605 rose from a low of 736 yuan/ton at the end of February to as high as 831 yuan/ton. This round of rebound mainly came from the following factors: first, in early March, the Iran-Iraq war broke out, causing crude oil prices to surge sharply, which indirectly pushed up freight rates and thereby strengthened iron ore. In March, Australian and Brazilian freight rates rebounded by more than 20% compared with late February. Second, news that iron ore long-term contract negotiations faced obstacles led the market to anticipate structurally tight iron ore. According to public data, restrictions on sales of certain iron ore varieties may result in roughly 20 million tons of port inventory being frozen. Third, Q1 is traditionally the low shipping season for iron ore, while hot metal output will gradually recover after the Spring Festival, creating a temporary mismatch between iron ore supply and demand.

Figure 11  Seasonal trend in average daily blast furnace hot metal output

Source: Donghai Futures Research Institute, Mysteel

Figure 12  Comparison of rebar gross margins and iron ore prices

Source: Donghai Futures Research Institute, Mysteel

For the iron ore price trend after the second quarter, you may need to pay attention to the following factors. Currently, steel mills are in a thin-profit situation; among 247 steel mills nationwide, the share of profitable mills remains at 43%, and there is still room for hot metal daily output to rebound in the short term. But based on past seasonal data, hot metal output is expected to reach the top for the first half from late April to early May. Meanwhile, as mentioned earlier, the rise in steel costs causes steel mill profits to continue to narrow. If steel mills enter a loss-making condition later on, the hot metal output peak could arrive earlier. At the same time, after the second quarter, iron ore supply will gradually rebound. Since March, global iron ore shipment volumes have risen for two consecutive weeks, with a cumulative rebound of 2.465 million tons, to 31.443 million tons. Based on the typical 2–4 week lag, arrivals to ports in April–May will increase. Under such expectations, if you also consider high port inventory levels, steel mills will not have strong enthusiasm for replenishing raw materials. As of end-March, iron ore inventory at 247 steel mills nationwide was 89.7856 million tons, down 1.3189 million tons year over year.

From a valuation perspective, current iron ore prices are 111.2 USD/ton. As steel mill profits narrow, the difference between their iron ore import profit and 2 months ago’s value (late February) also narrowed from 120 yuan/ton to 73 yuan/ton. At the same time, even without considering restrictions on Newman ore, registered tonnage for the minimum deliverable grade of iron ore is 814.6 yuan/ton, and the benchmark contract 05 is basically at par with spot in terms of basis. Therefore, whether from absolute valuation, relative valuation, or basis perspective, iron ore screen valuations are in a relatively high region. Combined with current iron element inventory levels and steel demand conditions, we believe that the probability is relatively high that the iron ore overvaluation will be repaired downward via screen price moves over the next 1–2 months.

Figure 13  Seasonal trend in iron ore import profits

Source: Donghai Futures Research Institute, Mysteel

Figure 14  Seasonal trend in iron ore port inventory

Source: Donghai Futures Research Institute, Mysteel

5. Conclusion and Investment Recommendations

In March, the steel market moved up in a volatile manner under the logic of cost support and policy expectations. After entering April, the market’s rebound toward the Middle East situation may gradually become less sensitive. At that time, the industry will return to a fundamentals-driven logic. The market is still in a peak season for steel consumption, but actual demand is below expectations, and after late April demand will weaken at the margin. At the same time, because steel mills are still earning thin profits, supply will continue to rebound in phases. Moreover, if costs rise further and transmission to downstream remains unsmooth, steel mills may enter losses again, so there are risks of phase-based negative feedback in the industrial chain.

Three factors—energy price increases, long-term contract negotiations, and temporary mismatches between supply and demand—collectively drove the rise in iron ore prices in March. After April, hot metal daily output has room to rebound, but based on seasonal data, the top for the first half may be seen from late April to early May. And if steel mills enter a loss-making state, the hot metal daily output peak could arrive earlier. Meanwhile, after the second quarter, supply will gradually rebound, and since March global iron ore shipment volumes have already risen for two consecutive weeks. If you also consider high port inventory levels, steel mills’ willingness to replenish raw materials is also not high. At the same time, regardless of whether from the basis, absolute valuation, or relative valuation perspective, ore valuations have reached a relatively high level. Therefore, in April, be mindful of the risk of phased pullback.

Trading Strategy: In April, the black commodity complex has the risk of a phased correction. The main rebar contract is around 3200, hot-rolled coil is around 3350, and iron ore is around 830, with some pressure nearby. The adjustment depth depends on the magnitude of the iron ore adjustment, but the probability of breaking to new lows is not high.

Important Disclaimer

This report was completed by the research team of Donghai Futures Co., Ltd. All information in this report comes from publicly available sources. Donghai Futures strives to ensure the objectivity and fairness of the report content, but does not provide any guarantees regarding the accuracy or completeness of this information, nor does it guarantee that the information and recommendations contained herein will not undergo any changes. All viewpoints, conclusions, and recommendations in this report are provided solely for reference for clients and do not constitute investment advice to clients. This report also does not consider any special investment objectives, financial conditions, or needs of individual clients. Clients should not rely solely on this report to replace their own independent judgment. Under any circumstances, this company shall not be liable for any losses incurred by any person due to the use of any content in this report. Traders bear risks themselves. The copyright of this report belongs exclusively to the research institute of Donghai Futures Co., Ltd. Without written permission, no institution or individual may reproduce, copy, or publish it in any form. If citing, reprinting, or publishing, the source must be indicated as the research institute of Donghai Futures Co., Ltd.

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