Key Macro Factors to Watch Next Week [SMM Steel Industry Chain Weekly Report]

Forecast for Next Week: Focus on Macro Disturbances

This week, ferrous metals were in the doldrums. On the first day after the holiday, due to the impact of overseas risk events during the long holiday—mainly the US's plan to impose a new round of tariffs on about six industries (including large batteries, cast iron and iron fittings, plastic pipes, industrial chemicals, as well as power grid and telecommunications equipment) and the escalation of US-Iran tensions—overall market sentiment fluctuated significantly, and ferrous futures also touched recent lows. Mid-week, driven by some steel mills in the Tangshan area receiving notices for voluntary emission reductions during the Two Sessions, coupled with Shanghai's adjustment of housing purchase restrictions and rumors of favorable real estate policies during the Two Sessions, futures rebounded from lows, with significant sector resonance effects. However, as the weekend approached, no new favorable policies emerged, and futures retreated again. In the spot market, construction material end-use construction sites mostly resumed work next week, leading to relatively stagnant demand, while sheets & plates saw mediocre trading performance in the first week after the holiday due to futures constraints.

In the short term, according to SMM survey tracking, daily average hot metal production rose by 7,700 mt WoW, but the overall increase fell short of expectations due to unexpected accidents at individual steel mills during the holiday, showing a slow growth trend thereafter. Considering the possibility of additional maintenance during the Two Sessions, raw material support remains relatively weak. For steel products, inventories of the five major steel products accumulated after the holiday, but inventory pressure is relatively controllable. Overall, finished steel remains in a fundamentally weak pattern. As the Two Sessions approach, next week's trading focus will be on the macro perspective. If macro factors provide corresponding positive news, it may be an opportunity for profit realization, followed by close attention to "demand verification" in the industrial sector.

Iron Ore: Prices Continued to Decline in the First Week After the Holiday, May Rebound Slightly Next Week

In the first week after the holiday, iron ore prices continued to decline. Shanghai's "Hu Seven Articles" policy briefly boosted market sentiment, but the impact was not lasting. Supply remained high, demand rebounded slowly, and iron ore prices continued a fluctuating trend in the doldrums. Looking ahead to next week, as the Two Sessions are about to convene, steel mills in North China may face environmental protection-driven production restrictions, and hot metal production could see a slight decline. However, considering that steel mill inventories continue to be consumed, restocking willingness is expected to rebound, and overall iron ore demand may be maintained. Supply side, multiple cyclones are expected to affect Australia next week, potentially again suppressing iron ore shipments from Australia; coupled with current low ore prices, which may inhibit shipments from some high-cost non-mainstream mines, overall shipments are expected to see phased contraction. From a macro perspective, as the first year of the 15th Five-Year Plan, market expectations for favorable policies during the Two Sessions remain. Based on this, SMM expects iron ore prices may rebound slightly next week, but considering the suppression from the long-term oversupply pattern and the fact that end-use demand resumption is still in the verification period, the rebound space is expected to be limited.

Coke: Fundamentals Gradually Weakened, Price Faces Expected Reduction

Supply side, coking plants maintained normal production pace with stable operations, but with the Two Sessions approaching, some regions issued voluntary emission reduction notices, leading to expectations of a slight decline in coke supply. Additionally, hindered transportation during the Chinese New Year caused inventory buildup at some coking plants, but post-holiday market transportation gradually resumed, easing sales pressure on coking plants. Demand side, affected by environmental protection policies, most steel mills in Tangshan and other regions have arranged maintenance plans, with production restrictions around 30%, leading to expectations of decreased hot metal output at steel mills and weakened rigid demand for coke. Coupled with fluctuating downward spot steel prices, steel mills adopted a cautious approach to coke procurement, with controlled arrivals. Coking coal side, in the first week after the holiday, coal mines continuously resumed production and operations, with some previously suspended mines returning to normal production. However, downstream sectors primarily consumed their own inventories in the first post-holiday week, remaining cautious in coking coal procurement, and online auction transaction prices generally declined. Overall, coke fundamentals gradually weakened, with prices facing expected reduction; the coke market may operate in the doldrums next week.

Steel Scrap: Weak Supply and Demand, Prices Fluctuate Rangebound

Supply side, constrained by slow resumption pace, raw material recycling and processing efficiency have not yet returned to normal levels, with full production resumptions expected after the Lantern Festival. Demand side, construction sites and manufacturing industries have not fully resumed work this week, and steel mills face significant pressure on finished product shipments, further suppressing steel scrap procurement intensity, leaving the overall market in a weak supply-demand pattern. Looking ahead, supply and demand will rebound simultaneously after the Lantern Festival, but supply-side recovery elasticity is likely greater than demand-side. Combined with high finished product inventories restraining steel mill restocking, steel scrap prices are expected to fluctuate rangebound.

Rebar: Post-Holiday Fundamentals Lack Drivers, Sentiment Dominates

This week, rebar prices consolidated, with the current nationwide average price at 3,135 yuan/mt, down 4 yuan/mt WoW from pre-holiday. Supply side, approaching the Two Sessions, some steel mills in Hebei region conducted maintenance, but the actual impact on building materials production was limited, while blast furnace steel mills in other regions largely maintained previous production levels. Additionally, electric furnace mills gradually resumed production after the tenth day of the first lunar month, so output will steadily rebound later. Demand side, downstream construction workers largely returned after the Lantern Festival, and normal demand procurement requires 1-2 weeks of preparation, so actual downstream demand has not yet started in the short term, though some speculative procurement demand was released this week. Inventory side, total inventory is in a seasonal buildup phase post-holiday; although lunar calendar YoY inventory data is higher than last year's level, the buildup pace is slower YoY, relatively meeting market expectations. Before downstream demand recovers, it will continue in the traditional inventory buildup stage. Looking ahead, the market's supply and demand fundamentals currently lack drivers. Short-term focus will be on macro policies and overseas news, with sentiment likely to dominate price movements. Spot prices are expected to have potential for periodic increases next week, but caution is needed against the risk of policy measures falling short of expectations and dragging prices down.

Hot-Rolled Coil: Post-Holiday Demand Recovery Remains Slow; Coil Prices Expected to Have Room for Recovery Next Week

This week, hot-rolled coil prices rose initially then fell. The most-traded contract closed at 3,215 today, down 0.25% intraday. Spot prices in major cities fluctuated 10-30 yuan/mt WoW compared to pre-holiday levels, with weak transactions. Market news mainly revolved around production restrictions and Two Sessions expectations, but these provided limited sustained momentum to market sentiment. After a short-term boost, coil prices weakened again. Returning to fundamentals, hot-rolled coil production continued to recover this week. However, post-holiday downstream purchasing enthusiasm has not fully resumed, and traders and clients had built some stockpiling inventories before the holiday, leading to overall weak domestic demand. Inventory side, SMM's statistics for 86 national warehouses (large sample) showed total social inventory of hot-rolled coil reached 5.3775 million mt, up 1.1404 million mt WoW from pre-holiday, and up 31.57% on a lunar YoY basis. By region, markets with larger accumulation were south China, east China, and north China. Plant inventory also accumulated by 166,300 mt, bringing total inventory to 6.7206 million mt, which is high compared to the same period but within market expectations. In summary, hot-rolled coil fundamentals are generally weak, offering little narrative room. Short-term focus should remain on the pace of downstream demand recovery and the impact of favorable macro rumors. The most-traded contract is expected to fluctuate between 3,180 and 3,280 next week.

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