Forecast for next week: Pre-holiday restocking & stronger external demand may shift steel prices from weak to strong next week
Ferrous metals diverged notably this week, with raw materials outperforming finished steel overall. Coking coal and coke spot prices stayed firm, with coke holding high after the fifth round of hikes took effect; iron ore stabilized after an initial dip, with average prices edging down MoM; rebar edged up from lows while hot coil pulled back. The cost side still lent some support to steel prices, but domestic demand remained sluggish during the September-October peak season, and steel prices in the doldrums continued to squeeze steel mill profits. As a result, blast furnace rebar mills saw deepening losses, with more blast furnace maintenance or switching to hot coil production; EAF mills still had profits and ramped up production, but overall inventory continued to destock. Hot coil production increased with total inventory edging down, leaving its fundamentals under more pressure than rebar. Overall, steel fundamentals improved somewhat but lacked upward momentum, maintaining a tug-of-war between cost support and demand suppression. Divergence across products may widen further next week. Firm coking coal and coke spot prices are unlikely to change in the near term, but widening steel mill losses and increasing maintenance-driven production cuts are building negative feedback risks, and whether the sixth round of coke price hikes can take effect remains contested. For iron ore, pre-National Day holiday restocking still provides support, but port inventories at 35 ports rebounded to 144.33 million mt, earlier cost-side positives have been fully priced in, and rumors of concluded long-term contract negotiations are spreading, so prices are expected to consolidate on a subdued note within range. Rebar supply growth is limited, peak-season demand realization still needs verification, and the pace of construction steel destocking may slow; hot coil consolidation continues, with attention on inventory inflection points and end-user purchasing volumes. Considering improving overseas demand and pre-holiday stockpiling support, steel prices may drift higher. Focus on changes in steel mill maintenance scope and marginal shifts in end-user transactions.
Iron ore: Restocking tailwind nearing its end, price support weakening
Iron ore prices showed a "dip-then-rebound" pattern this week. The most-traded I2701 contract fell from 718 yuan/mt last Friday to a weekly low of 707.5 yuan/mt on September 15, then only modestly recovered to 710.5 yuan/mt on September 17, posting a weekly loss of about 1.0%. After the fifth round of coke price hikes took full effect, blast furnace steel mills were almost universally loss-making. Daily average hot metal production at 242 steel mills fell from 2.4028 million mt to 2.3991 million mt, with maintenance and production halts expanding, dragging down iron ore demand expectations. Additionally, rumors about long-term contract negotiations continued to spread, raising market concerns about the release of low-grade port ore resources and increased tradable volumes of medium-grade ore. Combined with SMM imported iron ore inventories (35 ports) rising from 143.49 million mt to 144.33 million mt, fundamentals continued to weigh on prices. Market sentiment also soured after the US Fed's first rate hike in three years. Under these combined pressures, the MMI 61% port spot index slipped from 689 yuan/wmt to 685 yuan/wmt. However, pre-holiday stockpiling volumes expanded this week, providing some price support.
Looking ahead to next week, ore prices may continue to consolidate on a subdued note. The bullish impact of high ocean freight rates has been fully priced in, and C5 freight rates have pulled back for consecutive sessions, weakening the cost support effect. If the sixth round of coke price hikes is implemented, steel mill losses will deepen further, and hot metal production may decline at an accelerated pace. Long-term contract negotiations have entered a critical period, and if the rumors are confirmed, it will further weigh on ore prices. However, pre-National Day holiday restocking has driven a surge in forward spot transactions, which, together with the "September-October peak season" expectations, provides staged support for prices. On balance, ore prices are most likely to remain locked in a tug-of-war within the 695-725 yuan/mt range. Going forward, close attention should be paid to the outcome of long-term contract negotiations and changes in hot metal production.
Coke: Insufficient Driving Force for Further Price Hikes; Coke Prices to Stabilize at Highs Next Week
On the supply side, after the fifth round of price hikes was fully implemented, coke producers' losses narrowed significantly and operating rates improved somewhat. However, coking coal supply remains relatively tight, constraining coke producers' operations. Meanwhile, downstream demand is relatively strong, and coke inventories at producers continue to decline. On the demand side, losses across the steel industry are widening, and the number of blast furnace maintenance stoppages at steel mills has increased, weakening rigid demand for coke. Even with the Mid-Autumn Festival and National Day holidays approaching, the willingness to proactively restock remains subdued. Before substantial improvement is seen in finished steel demand and steel mill profits, coke restocking intensity will be significantly constrained. As for coking coal, production remains at low levels due to sustained pressure from safety inspections and voluntary production cuts at some mines after completing annual production targets. Supply-side growth is hard to achieve, providing some support to coking coal prices. In the short term, coking coal prices are likely to consolidate at highs. Overall, the driving force for further coke price hikes is insufficient in the short term, and coke prices are expected to stabilize at highs next week.
Steel Scrap: Improved Cost-Effectiveness and Pre-Holiday Restocking; Prices Likely to Consolidate in the Short Term
This week, steel scrap prices consolidated, and market activity improved somewhat. On the supply side, scrap processing bases are operating normally, and market scrap supply has increased. On the demand side, as recent raw material price gains have outpaced finished steel prices, most blast furnace steel mills are operating at a loss. Many mills have reduced production loads or extended maintenance plans, weakening demand for scrap. However, most electric furnace mills remain above the break-even line and maintain relatively high production enthusiasm, providing support for scrap demand. Meanwhile, with hot metal costs rising rapidly, scrap's cost-effectiveness has become more prominent. Additionally, with the Mid-Autumn Festival and National Day holidays approaching, some steel mills have pre-holiday restocking needs, all of which support current scrap prices. Overall, the supply-demand imbalance for steel scrap is not prominent in the short term, and scrap prices are expected to mainly move sideways.
Rebar: Bottom prices show strong resilience; pre-holiday stockpiling demand is being released gradually.
This week, rebar prices consolidated on a subdued note. Mid-week, prices staged a temporary rally driven by sentiment, but later pulled back further on news of coking coal and coke supply guarantees. On the supply side, blast furnace steel mills saw deepening losses on production, and some producers, considering that construction steel margins were inferior to those of coils, recently halted construction steel output and switched to hot coil production, leading to a further decline in construction steel production this week. EAF steel mills remained marginally profitable, with scrap procurement pressure easing from earlier levels. Some producers continued to extend operating hours, but because losses were significant during peak-rate electricity periods, they maintained production at flat and off-peak power levels, leaving limited room for further output growth. On the demand side, performance diverged by region. In south China, demand from some downstream projects was released ahead of the National Day holiday, and overall transaction volumes were decent. However, in central and northern regions, projects largely purchased as needed, with few new projects and existing projects dominating, so overall demand underperformed that of south China. On the inventory front, mill inventories and social inventories continued to destock this week, with the pace of destocking accelerating as pre-holiday stockpiling demand arrived early. According to feedback, raw material news recently weighed on market sentiment, and although prices weakened, the extent of the decline was relatively small, with spot prices showing strong resilience overall. Looking ahead, rebar fundamentals have improved markedly from earlier, and with a supply-demand mismatch in place, spot prices have solid support at the bottom. Next week, pre-holiday stockpiling demand will be largely released, and spot prices are expected to still have room to rise, though raw material news disruptions still warrant attention.
Hot coil: Mill price hikes and improving exports keep expectations for stronger hot coil prices next week.
This week, hot coil prices drifted lower, with overall transaction performance falling short of expectations. In addition, the US Fed's rate hike landed this week, further cooling market sentiment. In terms of supply, rolling line maintenance decreased this week, and overall hot coil production edged up slightly. In terms of demand, manufacturing is recovering slowly, and overall hot coil demand has begun to recover but has not met market expectations. On the inventory front, SMM data showed hot coil social inventory at 86 warehouses nationwide (large sample) stood at 4.6518 million mt this week, down 10,700 mt WoW, or -0.23% WoW. By region, all regions except east China, which destocked, saw inventory buildup. Looking ahead, coke prices are more likely to remain stable next week, while iron ore prices are expected to decline, weakening cost support for hot coil. However, Baowu's October pricing policy was released, raising hot-rolling base prices by 200 yuan, and some steel mills received large export orders, easing domestic supply pressure. As a result, hot coil prices still have upside expectations. In summary, the most-traded hot coil contract is expected to trade in the 3,270-3,370 range next week, drifting higher.
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