Firstly, the range of inventory accumulation in the steel off-season is lower than the same period in previous years, and the contradictions in the steel industry are not obvious.

As of January 23, the total inventory of five major steel varieties was 12.57 million tons, an increase of 250,000 tons from the beginning of January. In 2022-2024, the inventory increased by 3.12 million tons, 1.19 million tons, and 1.38 million tons respectively. By variety, although rebar inventory has accumulated for three consecutive weeks, the accumulation range is small, and the inventory volume is still at a relatively low level compared with the same period in previous years. Although the inventory of hot-rolled coil is relatively high, supported by demand, it continued to destock in the off-season of January, and the fundamentals are also relatively healthy.

Secondly, the oversupply of raw materials and the expectation of inventory replenishment have led to a slight fluctuation in raw material prices.

For coking coal: In January, coking and steel enterprises gradually started replenishing coking coal inventories (coking enterprises' inventories increased by 13% month-on-month), and mine inventories were smoothly destocked (coal mine inventories decreased by 3% month-on-month). Although demand was good, the supply increment was also relatively obvious. Due to the substantial increase in coking coal imports from Mongolia, China's coking coal imports in December increased by 13.77 million tons year-on-year, a growth rate of 28.6%. Coking coal imports continued to grow in January, with the customs clearance volume at Ganqimaodu port increasing by 19% year-on-year.

For iron ore: Due to the sharp increase in iron ore imports, the inventory of imported iron ore exceeded 170 million tons, reaching a new high in nearly five years; however, there is a structural contradiction in iron ore inventory, with steel mills' imported iron ore inventories being relatively low (down 13.4% year-on-year). Against the background of steel mills replenishing raw material inventories, iron ore prices still fluctuated at a high level.

Fourthly, weak expectations have made it difficult for prices to form an upward trend.

The real estate industry has not yet hit the bottom. Although there is support from steel demand in the manufacturing industry, the market generally believes that steel demand will still decline in 2026. From the perspective of the trade link, due to general caution about the market situation after the year, the willingness to store steel for the winter is insufficient, and speculative demand has disappeared.

To ease debt repayment pressure, the Federal Reserve may cut interest rates more aggressively in 2026, leading to loose market liquidity.

In December, the U.S. CPI increased by 2.7% year-on-year, and the core CPI was lower than expected both year-on-year and month-on-month, unchanged from the previous month's four-year low; at the same time, the U.S. unemployment rate fell in December, indicating that the current U.S. economic pressure has been alleviated and inflation is under control. To ease debt repayment pressure, the number of interest rate cuts in 2026 may exceed 2, and the intensity of interest rate cuts will also be higher than market expectations.

Domestic monetary and fiscal policies have made joint efforts at the beginning of the year

In terms of monetary policy: On January 23, the People's Bank of China conducted a 900 billion yuan Medium-term Lending Facility (MLF) operation through fixed quantity, interest rate bidding, and multi-price winning bids, with a term of 1 year. This is the central bank's 11th consecutive month of incremental rollover, releasing liquidity. In addition, Pan Gongsheng, Governor of the central bank, stated that it will continue to implement a moderately loose monetary policy, and there is still room for reserve requirement ratio cuts and interest rate cuts.

In terms of fiscal policy: The first batch of 93.6 billion yuan ultra-long-term special government bonds for equipment renewal and the first batch of 62.5 billion yuan ultra-long-term special government bonds for trade-in in 2026 have been issued. The accelerated implementation of the "two new" funds (new equipment renewal and new trade-in) will boost domestic demand.