Weakening coking coal and coke prices drag down the ferrous sector; steel prices may continue to move sideways in the short term [SMM Steel Industry Chain Weekly Report]

Forecast for next week: Weakening coking coal and coke drag down ferrous metals; short-term steel prices likely to continue consolidating in a narrow range

Before the holiday, ferrous metals as a whole consolidated in a narrow range. Among them, coking coal and coke were hit hard by expectations of the "stable coal production and supply guarantee" policy from three ministries, posting the largest declines and hitting new monthly lows; HRC and rebar prices were basically flat; iron ore, supported by ocean freight rates, saw its weekly average edge up MoM. The core contradiction remained concentrated in the carbon element: steel mill losses widened, daily hot metal production continued to slide, and steel mills showed a stronger desire to bargain down raw material prices; coking coal, hit first by expectations of the stable production and supply guarantee policy, weakened, and the loosening cost side eroded the overall valuation of ferrous metals. On end-use demand, concentrated downstream restocking before the double holiday drove a rebound in weekly apparent consumption of rebar, and total inventory destocking expanded, but it still fell YoY, suggesting the peak season was not strong enough. With bullish and bearish forces balanced, ferrous metals as a whole consolidated on a weak note.

Looking ahead to after the holiday, on the supply side, hot metal production at steel mills is expected to continue declining, and raw materials are likely to remain under pressure. Coking coal and coke may still weaken under the weight of policy expectations, further loosening cost support. On the demand side, low steel production and low inventory provide some bottom support for prices. Coupled with resilient domestic demand, overseas demand is expected to gradually recover and drive growth in steel exports, keeping overall steel demand on an improving track and providing support below prices. On the macro front, repeated expectations of tightening outside China are creating periodic pressure on risk assets, making it difficult for market sentiment to recover significantly and limiting room for price fluctuations. Overall, with bullish and bearish factors intertwined, ferrous metals lack a trend driver in the short term and are expected to continue consolidating in a narrow range. Subsequent focus should be on the pace of hot metal production cuts after the holiday, the recovery of steel demand, and changes in macro policy.

Iron ore: Macro support vs. fundamental pressure; iron ore prices continue weak narrow-range consolidation

Last week, iron ore prices consolidated weakly in a narrow range, with both domestic and overseas market price fluctuations not exceeding 1.5%. Main drivers: First, pre-holiday restocking neared its end. With the Mid-Autumn Festival and National Day holidays approaching, steel mills had completed most raw material stockpiling, purchase willingness pulled back, and spot trading was sluggish. Second, hot metal production continued to fall. Widening steel mill losses led to more blast furnace maintenance, and hot metal production kept sliding, suppressing ore demand. However, Brazilian ocean freight rates continued to shoot up, curbing shipments from some small mines, and market chatter increased, lending support to ore prices. Under the combined impact, iron ore prices maintained a "consolidate on a weak note" pattern.
Looking ahead to this week, pre-National Day stockpiling is gradually winding down, and steel mill restocking momentum is fading. Although some restocking expectations remain for the first week after the holiday, overall restocking volumes are expected to be notably lower than pre-holiday levels, providing weak support for ore prices. Based on SMM blast furnace maintenance tracking data, blast furnace maintenance volumes will continue to increase in October, and the decline in hot metal production will widen, keeping overall iron ore demand on a downtrend. On the supply side, although high Brazilian ocean freight rates are somewhat curbing shipments from small mines in that region, considering that mainstream mines typically push volumes in September and that shipments from Guinea are growing, the overall supply growth of iron ore is expected to expand, and port inventory buildup is likely to accelerate, pressuring ore prices. In addition, capital leaving the market before the holiday is also causing liquidity to shrink, and overall sentiment in ferrous metals is bearish. However, the neutral-to-positive consensus between China and the US may provide some boost to market sentiment and support ore prices.Overall, ore prices are expected to continue consolidating weakly in a narrow range before and after the National Day holiday. Subsequent focus should be on whether hot metal production declines as expected, changes in end-use demand, and policy-related news disruptions.

Coke: Bearish factors gradually expand before the holiday; expectations for the first round of coke price cuts continue to build

In terms of supply, coke enterprise losses continued to narrow, and some enterprises have begun formulating and launching production ramp-up plans. However, coke enterprise costs remain firm, and overall capacity release is still slow. Only a few coke enterprises have modestly resumed production, while most are maintaining existing production restrictions. Current coke shipments are moderate, and coke inventory at plants continues to pull back. In terms of demand, hot metal production at steel mills is staying high, still supporting rigid coke consumption, and steel mill coke inventory is in a low range, supporting coke prices. However, phased restocking demand before the National Day holiday is limited, and steel mill profitability has not yet recovered, so restocking intensity is clearly constrained by capital pressure. On the coking coal side, three ministries issued documents on safe and stable coal production and supply guarantee, and the market is trading expectations of supply recovery. However, actual production release still needs time to materialize, and growth before the National Day holiday is expected to be relatively small. Short-term mine production increases face hard constraints, and the tight supply fundamentals have not materially reversed. Coking coal prices are likely to consolidate on a subdued note in the short term. Overall,bullish and bearish forces on both supply and demand sides are locked in a tug-of-war, but bearish factors are gradually expanding, and expectations for the first round of coke price cuts before the National Day holiday continue to build.

Steel scrap: Double holiday cools market trading; short-term prices expected to consolidate

On the supply side, during the Mid-Autumn Festival holiday, transportation was hindered, some yards were closed for the holiday, and steel scrap arrivals dropped noticeably. On the demand side, earlier sustained coke price increases pushed up hot metal costs, widening the hot metal-scrap price spread. Blast furnace steel mills raised the scrap ratio, EAF operating rates continued to edge up, and overall daily scrap consumption remained resilient. At the same time, in the first half of this week, steel mills made routine pre-holiday rigid stockpiling to ensure continuous production during the holiday and avoid material shortage risks, so scrap demand was moderate.Looking ahead, the National Day long holiday will keep supply contracting. Some restocking may still occur before the holiday, but it is unlikely to drive a trend rise in prices. During the holiday, market trading will cool, and steel scrap may be in a state of quoted prices but no deals. Short-term steel scrap prices are expected to mainly consolidate.

Rebar: Fundamentals continue to improve; bottom prices show strong resistance to declines

Before the Mid-Autumn Festival, rebar prices overall drifted higher. After the holiday, market sentiment weakened under macro influences, but spot bottom prices were relatively firm, and demand in some markets was still being released. On the supply side, steel mill losses have not improved effectively recently, and most mills are maintaining previous production levels. However, some mills, considering pre-double-holiday restocking demand, diverted a small amount of hot metal back to construction steel, so production edged up. Most EAF steel mills are operating at profitable levels and generally running during off-peak and flat-rate electricity periods, but further extending operating hours would likely push them into losses, so short-term EAF operating rates will remain at mid-levels. On the demand side, end-user project restocking demand surged before the Mid-Autumn Festival, and a small amount of demand was still being released after the holiday. But with the National Day long holiday approaching, the overall pace of purchases is nearing its end. In addition, some projects remain cautious in stockpiling, only ensuring demand during the holiday, so some demand is still expected to be released in a concentrated way after the National Day holiday. On inventory, plant inventory and social inventory destocked sharply last week, but demand fell WoW this week, and the destocking speed may slow noticeably. Looking ahead, supply-demand fundamentals continue to improve, and spot prices are showing strong resistance to declines. However, after the holiday, coking coal and coke face expectations of price cuts, and lower costs may limit upside for spot prices. Still, with phased demand release after the holiday, bottom prices retain some support.After the National Day holiday, market prices are expected to consolidate in a narrow range, with relatively limited room both upward and downward.

HRC: Pre-holiday restocking demand increases somewhat; HRC prices expected to fluctuate narrowly this week

Last week, HRC prices were basically flat compared with the previous week, and overall trading increased from the prior week. In terms of supply, the impact from rolling line maintenance fell WoW last week, and overall HRC production rebounded. In terms of demand, pre-holiday restocking demand surged, driving apparent demand up WoW last week. In terms of inventory, SMM statistics showed HRC social inventory at 86 warehouses nationwide (large sample) stood at 4.5356 million mt last week, down 116,200 mt WoW, or -2.5% WoW, and up 23.27% YoY on a calendar-year basis. By region, inventory across the country declined to varying degrees, with the most notable declines in central and northern China. On the cost side, cost support for HRC showed no significant change last week. Looking ahead, pre-holiday peak-season demand is weak, and steel mills and traders are under price pressure. However, with the National Day holiday being relatively long, pre-holiday restocking demand still provides support.Prices are expected to hold firm and consolidate around current levels. The most-traded contract is expected to trade in the 3,260-3,330 range. After the holiday, focus should be on inventory buildup and demand recovery.

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