Strong Cost Support Remained; Ferrous Metals May Hold Up Well in the Short Term [SMM Steel Industry Chain Weekly Report]

Forecast for Next Week: Cost Support Remains Strong, Ferrous Metals May Hold Up Well in the Short Term

This week, ferrous metals rebounded from lows. Early in the week, coking coal and coke led futures higher, mainly due to rising crude oil prices outside China, which lifted the energy and chemicals sector accordingly; mid-week, both the US and Iran showed a willingness to ease tensions over war, cooling geopolitical risks, while coal prices also fell, weakening the cost-driven logic, and ferrous metals fluctuated at highs; in the second half of the week, short-term liquidity issues in BHP iron ore port inventory intensified, driving iron ore prices in the overseas market higher, while the Middle East situation remained volatile, reinforcing cost support and pushing ferrous metals to surge again. In the spot market, boosted by futures, end-user and arbitrage purchase sentiment both improved WoW this week.

Short term, according to SMM survey tracking, daily average hot metal output fell 36,400 mt WoW this week. Due to environmental protection measures and safety inspections, the decline in daily average hot metal output was significant this week, but the impact is expected to ease next week, and hot metal output will increase rapidly. At the same time, disruptions at the iron ore and coking coal and coke ends still persist, so support from the raw material side will remain relatively strong in the short term; on the steel side, end-users are gradually resuming production, and inventory of the five major steel products is about to reach a destocking inflection point, in line with seasonal trends. Overall, the current fundamentals of finished steel products are in line with expectations, while the key driver still lies in raw materials. In the short term, the US-Iran conflict and China-US negotiations may still see repeated twists, and cost support will continue to push steel prices to hold up well.

Iron Ore: Intensifying Tug-of-War Between Sellers and Buyers Drove a Sharp Price Increase, Expected to Fluctuate at Highs Next Week

Iron ore prices rose sharply this week. Iron ore fundamentals showed weak supply and demand this week, but bargaining in long-term contract negotiations escalated, with some mainstream medium-grade ore included on the restriction list and a clear ban on port cargo pick-up from March 20, further tightening tradable resources. Meanwhile, news emerged of a worker strike in Australia’s Pilbara region, boosting market sentiment. Under the combined impact of multiple factors, the tightness in medium-grade ore spot cargoes intensified, driving iron ore prices to rebound sharply to high levels. In terms of port spot prices, the increase was weaker than that in futures, with the weekly average price of PB fines at Qingdao Port up 23 yuan/mt WoW.

Looking ahead to the imported ore market next week, as the Two Sessions concluded, blast furnaces at steel mills in Hebei are gradually resuming production, and hot metal output is rebounding rapidly, which will drive a phased improvement in iron ore demand. Meanwhile, the market is entering a stage of bargaining over policy implementation, and related news may still cause strong disturbances to futures, with sentiment-driven momentum still in place. However, it should be noted that port inventory remains high, alternative resources are ample, and as weather-related disruptions in Australia and Brazil fade, global iron ore shipments are gradually returning to normal. Overall, the supply side remains loose, which will weigh on ore prices, leaving limited upside room. Overall, ore prices are expected to fluctuate at highs next week.

Coke: The Market May Remain Temporarily Stable Next Week, With Price Cut Expectations Temporarily Fading

In terms of supply, costs edged down slightly, coke producers' profits improved somewhat, and the overall operating level remained moderate. However, downstream procurement sentiment was average, shipments at some coke producers slowed, and inventory pressure still persisted to some extent. Demand side, steel mill profitability did not improve significantly, and some steel mills slowed their procurement pace, mainly purchasing as needed for coke. On the coking coal side, coal mines maintained normal production and coking coal supply was ample. Recently, some downstream enterprises with low inventories showed willingness to restock, coupled with some traders entering the market to purchase, market trading sentiment recovered somewhat. After some coal mines lowered their quoted prices, shipments improved and inventory pressure eased slightly. In summary, the coke market may remain temporarily stable next week, with expectations for price cuts temporarily fading.

Steel Scrap: Tight Supply-Demand Balance, Prices May Hold Up Well Next Week

Supply side, although steel scrap recycling and processing gradually recovered this week, the total volume of circulating resources in the market remained tight, merchants held bullish sentiment, and shipments were relatively slow; demand side, the production resumption process at China's electric furnace steel mills continued to advance, with 24 additional electric furnace mills resuming production this week, driving a rapid rebound in the overall operating rate of electric furnace mills. According to the SMM survey, the operating rate of 50 electric furnace steel mills nationwide mainly producing construction materials was 35.38% this week, up 24.62 WoW from the previous period. Overall, steel scrap supply and demand remained in a tight balance, and steel scrap prices are expected to hold up well next week.

Rebar: Weak Fundamental Drivers, More Pronounced Follow-On Fluctuations

Rebar prices held up well this week, with the nationwide average price now at 3,164 yuan/mt, up 31 yuan/mt from last Friday WoW. Supply side, many electric furnace mills resumed normal production this week, and production rebounded significantly, but a small number of producers delayed their production resumption plans due to profitability issues and difficulties in collecting steel scrap; blast furnace steel mills mostly maintained previous production levels, and some producers, considering inter-product advantages, recently planned to divert hot metal back to construction materials, leaving room for further production increases next week. Demand side, terminal construction sites gradually resumed work and actual demand was gradually released. In addition, stimulated by phased favorable news this week, speculative procurement demand in the market improved, but considering the relatively late resumption of work at northern construction sites, demand is expected to continue improving over the next 1-2 weeks. Inventory side, the growth in mill inventory and social inventory slowed this week, and some steel mills' financial inventory already turned negative. Based on the inventory buildup cycle in previous years, mill inventory may reach a destocking inflection point next week; at present, winter stockpiling resources are being picked up one after another and basically need to be picked up by month-end March, so social inventory is still expected to increase before late March. Looking ahead, rebar lacks strong fundamental drivers and is unlikely to see a trending market, so it will continue to fluctuate in line with the raw material side. In addition, producers have been relatively cautious in their operations, while traders have mainly adopted a quick in-and-out approach, with securing profits as the dominant mindset. Prices are expected to have upside expectations driven by sentiment, but the room for gains at higher levels may be limited.

HRC: Fundamentals Offer Little Short-Term Narrative Space, Expected to Hold Up Well Next Week Following the Cost Side

This week, HRC fluctuated higher, with the most-traded contract closing at 3,295 on Friday, up 0.52% on the day. In the spot market, weekly prices were raised by 30-70 yuan/mt, and transactions improved somewhat WoW. News this week was largely centered on the raw material side, with reports that multiple enterprises in China rushed to transfer BHP ore out of concern over new restrictions. Market worries over a phased iron ore shortage significantly boosted coil prices. Returning to HRC fundamentals, affected by production restrictions and maintenance, HRC production continued to decline this week. On social inventory, SMM data showed that HRC social inventory at 86 warehouses nationwide (large sample) stood at 5.5953 million mt this week, down 16,800 mt WoW, or down 0.3% WoW, and up 25.02% YoY on a lunar-calendar basis; the increase in total HRC inventory slowed markedly. Apparent demand rebounded slightly WoW, but remained below the level of the same period last year. Looking ahead, sheets & plates fundamentals offer little narrative space, and cost support is more dominant. Before there is any clear pickup in HRC demand at home and abroad, prices are likely to continue holding up well in the short term following cost trends, with the most-traded contract expected to fluctuate in a range of around 3,250-3,330.

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