Focus on Post-Holiday Inventory Accumulation in Ferrous Metals [SMM Steel Industry Chain Weekly Report]

Forecast for next week: Focus on inventory buildup after the holiday

This week, ferrous metals were in the doldrums. There was no significant macro news to disrupt the market; although the US dollar index pulled back, leading to a rebound in non-ferrous metals and the A-share market, ferrous metals did not follow suit. Instead, bearish funds put pressure on the market, causing finished steel prices to weaken. In the spot market, most markets have entered a state of suspension, with spot prices basically stable and market transactions sharply contracting. In the short term, according to SMM's tracking, the daily average hot metal production increased by 15,800 mt MoM this week, and there is still a possibility of further increases during the holiday. However, as steel mills have completed their pre-holiday restocking, the support from the raw material side is limited. On the steel side, with the holiday approaching, demand has rapidly contracted, while supply remains flexible, leading to an accelerated buildup of the five major steel inventories. Overall, finished steel is currently in a phase of lower-bound range trading. Considering that funds are gradually leaving the market before the holiday, the room for further price declines is limited. After the holiday, the focus will be on the extent of inventory accumulation and the strength of demand recovery.

Iron ore: Weak rangebound fluctuations this week, potential for a rebound after the holiday

This week, iron ore prices continued to fluctuate rangebound, with a slight downward shift in the price center. On one hand, steel mills have largely completed their pre-holiday stockpiling, and purchase willingness has weakened significantly. Although hot metal production increased by 15,800 mt MoM, steel mills mainly consumed their own inventories, and sluggish market transactions put pressure on prices. On the other hand, the impact of the cyclone on Australian shipments has not yet been felt, and global shipments rose 13.3% MoM, maintaining high supply-side pressure. Port inventories, though temporarily declining, remain at very high levels. As a result, both futures and spot prices continued to drop slightly this week. From the perspective of port spot cargoes, the weekly average price of PB fines in Shandong ports fell 10-15 yuan/mt MoM. In the first week after the holiday, on the supply side, shipments from Australia and Brazil may be affected by weather disruptions, potentially leading to a temporary decline in global iron ore shipments. On the demand side, according to SMM's survey, blast furnaces are still in the process of resuming production, and hot metal production is expected to continue to increase slightly. Given that steel mills primarily consumed their inventories during the holiday, there is some room for restocking after the holiday, and overall demand for iron ore is expected to grow. From a macro perspective, the Two Sessions will be held in early March, and the market still holds expectations for pro-growth policies, which may improve sentiment. However, two risks need to be watched: one is the potential price disruption after long-term contract negotiations, and the other is the risk of increased finished steel inventory pressure if post-holiday end-use demand recovery falls short of expectations. Overall, SMM expects iron ore prices to have a chance to rebound after the holiday, but the rebound may be limited.

Coke: Market expectations remain poor, coke prices may decrease after the holiday

On the supply side, coking costs decreased this week, and coke producers' profits increased slightly, with overall production levels remaining stable. However, as the Spring Festival approaches, freight transportation is hindered, and with downstream restocking largely complete, some coke producers are experiencing difficulties in shipping, leading to a buildup of coke inventories. On the demand side, after continuous restocking, steel mills' coke inventories are mostly at high levels, and the willingness to restock before the holiday is low, with purchases made as needed. In terms of raw materials, this week being the last week before the Spring Festival, coal mine safety inspections have become stricter, and some mines have temporarily suspended operations, keeping coking coal supply tight. However, downstream purchasing enthusiasm has declined, and the market trading atmosphere has gradually become sluggish, with coking coal prices showing weak stability. Looking ahead, the market generally has a bearish expectation for the post-holiday period, and coke inventories at coke producers may continue to accumulate during the holiday. Even if there is some restocking demand after the holiday, the market expectations for coke remain poor. Therefore, it is expected that the coke market will continue to be in the doldrums after the holiday, with a possibility of price decreases.

Steel scrap: Supply and demand both weakened before the holiday, steel scrap prices fluctuated rangebound

On the supply side, as the Spring Festival approaches, steel scrap processing bases have gradually shut down, and the Spring Festival travel rush has led to tight transportation capacity and rising freight costs, significantly reducing the efficiency of resource circulation. The arrival of steel scrap in major regions has decreased notably. On the demand side, domestic electric furnace steel mills have entered a concentrated shutdown period for the Spring Festival, with 38 additional electric furnaces shutting down this week, leading to a rapid decline in the operating rate of electric furnaces and a significant drop in steel scrap demand. Looking ahead, the steel scrap market will maintain a dual-weakness pattern in both supply and demand, with a significant decrease in overall liquidity, and prices are expected to continue to fluctuate rangebound.

Rebar: Traders on holiday, market closed, post-holiday prices may see a "good start"

This week, rebar prices consolidated, with the nationwide average price at 3,139 yuan/mt, down 1 yuan/mt MoM. On the supply side, after the Minor New Year, electric arc furnaces in both the south and north have entered the annual shutdown period, with production resumptions scheduled to begin around the tenth day of the first lunar month. Blast furnace steel mills have slightly reduced production loads due to stagnant market demand during the holiday, resulting in a small decrease in overall production. On the demand side, traders have already started their holidays, and transactions have come to a halt. Traders will resume work around the eighth day of the first lunar month, while construction sites will resume work after the Lantern Festival, with speculative procurement likely to dominate initial purchases. In terms of inventory, both factory and social inventories are in a seasonal inventory buildup phase. This year's winter stockpiling was moderate, and the risk of post-holiday inventory buildup is manageable. Additionally, due to transportation restrictions during the holiday, some resources will temporarily accumulate in factories, and after logistics resume, steel mills will accelerate the transfer of these resources to the market. Overall, the post-holiday market will be driven by sentiment. With the Two Sessions scheduled for early March, the market is expected to see some speculation, and spot prices may get off to a good start.

Hot-rolled coil: Post-holiday restocking demand may gradually start, hot-rolled coil prices have room for a slight increase

This week, hot-rolled coil prices fluctuated downward, and as it was the last week before the Spring Festival, most market participants had already taken their holidays, leading to a cold market with few actual transactions. On the supply side, pre-holiday maintenance decreased, and this week, hot-rolled coil production at steel mills showed a slight increase. On the demand side, the market transaction atmosphere remained cold, and apparent demand continued to weaken, with downstream steel mills having completed their pre-holiday restocking. In terms of inventory, SMM's statistics show that the national hot-rolled coil social inventory in 86 warehouses (large sample) was 4.237 million mt, up 195,700 mt or 4.84% MoM. In the last week before the holiday, the national social inventory buildup expanded significantly. By region, except for a slight decrease in the Northeast market, all other markets saw inventory accumulation. On the cost side, coking coal prices were stable before the holiday, while iron ore prices shifted slightly downward due to weak demand, resulting in insufficient cost support. Looking ahead, post-holiday restocking demand in the downstream industry chain may gradually start, but the market is also concerned about poor demand release after the holiday. Therefore, hot-rolled coil prices may only increase slightly, and it is expected that the most-traded hot-rolled coil contract will operate within the 3,190-3,270 range after the holiday.

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