Policy Expectations Fell Through, Compounded by Deepening Negative Feedback, Next Week May Continue to Consolidate at Lows [SMM Steel Industry Chain Weekly Report]

Weekly Forecast: Policy Expectations Fall Flat and Negative Feedback Deepens; Next Week May See Continued Consolidation at Lows

This week, ferrous metals drifted lower overall, led by iron ore and rebar, which hit new lows for the phase. The core driver of the decline was a resonance of multiple bearish factors: First, after the Politburo meeting, the outcome fell short of market expectations, causing emotional support to collapse. Second, cost support collapsed step by step, with the second round of coke price cuts quickly implemented and the market unanimously expecting a third round to come. Additionally, hot metal output dropped to the bottom, while iron ore global shipments stayed high and port inventories were ample; the decline in raw material prices allowed the negative feedback logic to transmit smoothly. Finally, end-use demand was seasonally weak, with high temperatures and heavy rainfall curbing construction. Total ferrous metals inventories continued to accumulate, spot transactions were sluggish, and the supply-demand imbalance persisted.

Next week, the market is expected to continue its weak bottom-seeking pattern in the short term, but the pace of decline may slow down somewhat. Fundamentals side, according to SMM tracking, finished steel supply has remained relatively loose. Demand side, constrained by the deepening off-season, end-use procurement is unlikely to see significant volume increases, making the strong-supply-weak-demand pattern hard to reverse for now. Raw material side, the game over the third round of coke price cuts will intensify. If implemented, the cost center of steel will shift further downward. Iron ore, under high shipments and port inventory pressure, is hard to see stabilization on the cost side. Rebar and hot-rolled coil are expected to mainly consolidate at lows, with the downside room needing to be observed for the validity of previous low support. On the operation side, it is advisable to maintain a cautious bearish stance in the short term, paying attention to steel mill maintenance developments and marginal changes in end-use transactions.

Iron Ore: Sentiment Recovery After Sharp Decline; Small Rebound Expected Next Week

This week, iron ore prices drifted lower, with the most-traded contract I2609 leading the decline in ferrous metals, hitting an intraday low of 706 yuan/mt, a new low for the year. This round of decline was driven by a resonance of multiple factors. Compared to the sharp adjustment in futures, port spot cargoes showed relative resistance, with the decline narrowing significantly.

Looking ahead to next week, supply pressure on iron ore will be significantly greater than demand. Under the loose supply pattern, port inventories are expected to continue accumulating, thus suppressing the upside room for ore prices. Cost side, influenced by the escalation of the US-Iran conflict, crude oil prices strengthened, driving a slight rebound in ocean freight rates, providing some cost support for iron ore prices. Additionally, the market pessimism this week has been somewhat released, and ore prices saw a greater-than-expected decline, so there is a technical repair need in the short term. However, considering the overall weak end-use demand, it is difficult to provide sustained upward momentum,Next week, ore prices are expected to show a consolidative recovery trend, with limited rebound room.

Coke: Supply-Demand Imbalance Widens; Third Round of Price Cuts Possible Next Week

Supply side, the second round of coke price cuts was implemented, causing most coke producers to fall into losses, with slight production cuts observed. However, shipments from coke producers were poor, and in-factory inventories accumulated to varying degrees. Demand side, coke prices have been cut twice, slightly narrowing steel mill losses. However, off-season steel demand remains sluggish, with inventory pressure persisting. Mills continue to control coke arrivals and push for further price cuts. Coking coal side, stringent safety supervision continues to constrain mine production releases. With the second coke price cut now implemented, downstream procurement maintains a wait-and-see stance, and new orders at mines remain insufficient. Some high-end coal grades have slight room for compensatory price cuts, and the near-term coking coal market is likely to stay in the doldrums. Overall, coke’s supply-demand imbalance is significant, and the near-term coke market is expected to remain weak, with the possibility of a third price cut.

Steel Scrap: Tight Balance Under Weak Supply and Demand; Near-Term Prices Seen Consolidating

Supply side, scrap processing bases, constrained by capital lock-ups, invoice compliance, and payment collection cycles, tend to control inventories. With prices at low levels, the social recycling sector shows increased reluctance to sell. Demand side, iron ore still faces resistance, and the coke price cuts taking effect have widened the cost advantage of hot metal once again, reducing blast furnace mills' incentive to raise scrap addition ratios. EAF mills, hit by off-season demand and persistently low margins, remain cautious, keeping production at low to medium levels while sticking to their strategy of producing based on sales. Overall, the contraction in low-priced supply balances weak mill demand, and scrap prices are expected to continue consolidating in the near term.

Rebar: Downward-Shifting Cost Side Keeps Bottom Prices at Risk

Rebar prices drifted lower this week. The nationwide average price now stands at 3,052 yuan/mt, down 40 yuan/mt WoW. Supply side, although recent raw material concessions brought some relief, most mills are still loss-making, dampening production enthusiasm. In addition, mills in central and northern China face negative cash flow pressure and have near-term maintenance plans, which will further ease output pressure. Moreover, electric furnace losses are deepening, and with summer scrap collection difficulties, some producers continue to reduce operating hours, with a few planning shutdowns next week, pointing to a continued downtrend in EAF operating rates. Demand side, the week's falling prices combined with seasonal demand weakness resulted in generally lukewarm transactions. Rainy weather also disrupted construction in some regions, slowing downstream procurement pace. Inventories: mill inventories declined while social inventories rose, keeping total stocks in an inventory buildup phase, with off-season inventory pressure gradually becoming more evident. It is understood that profitability now diverges by region across the country. East China mills remain relatively profitable, with some still generating positive gross margins, while mills in northern and northwestern China face heavier losses and mounting inventory, bordering on negative cash flow. Looking ahead, the implementation of the second coke price cut shifts the cost side lower, weakening bottom-level price support. Focusing back on rebar fundamentals, the supply-demand imbalance is accumulating, and weak demand offers no driver. Spot prices are expected to face further downside risks next week , with attention needed on market fund flows and mill maintenance curtailments.

Hot-Rolled Coil: Disappointed Meeting Expectations and Fundamental Pressure, Price Bottom Consolidation

This week, hot-rolled coil prices weakened compared to the previous week, with overall transactions declining WoW. Supply side, the impact from maintenance on rolling lines decreased WoW, leading to an increase in overall HRC production. Demand side, apparent demand declined WoW. Inventory side, total HRC inventory rose by 77,500 mt WoW, while plant inventory fell by 6,200 mt WoW. Social inventory side, this week SMM’s nationwide 86-warehouse (large sample) HRC social inventory stood at 4.4773 million mt, up 83,700 mt WoW (+1.90%) and up 40.27 YoY. By region, except for slight destocking in the northeast, all other markets saw inventory buildup, with east China fluctuating more significantly. Cost side, the second round of coke price cuts was implemented this week, weakening cost support. Looking ahead, a third round of coke price cuts is expected, and cost support is likely to remain weak overall. From a fundamental perspective, the current supply-demand imbalance for HRC continues to accumulate. Coupled with disappointed expectations from the Politburo meeting, there is no clear upward catalyst for prices. However, considering that prices are already at relatively low levels, downside room is limited. Next week, HRC prices are expected to consolidate at the bottom range, with the most-traded HRC contract fluctuating within the 3,200-3,390 range.

1. Data covered in the report is available at SMM Data Terminal (

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