Forecast for next week: Ferrous metals in the doldrums at the bottom in the short term
This week, ferrous metals continued to pull back, with coking coal and coke seeing the most notable correction. In the first half of the week, the Ministry of Industry and Information Technology issued a notice on the implementation measures for capacity replacement in the steel industry, proposing that the replacement ratio for ironmaking and steelmaking capacity be no less than 1.5:1. The further tightening of capacity replacement requirements has a longer-term impact. Meanwhile, ex-China macro market fluctuations were significant, and market expectations for ex-China "rate hikes" strengthened. In the second half of the week, data on the five major steel products were released, showing production increased while inventory continued to destock. Spot market side, traders began to soften on prices, the hot-rolled coil spot-futures price spread continued to narrow, some spot-futures traders mainly cut losses and shipped out, while end-users continued to restock on an as-needed basis.
In the short term, according to SMM survey tracking, daily average hot metal output decreased by 1,000 mt WoW this week. Starting next week, previously idled facilities will successively resume production, and hot metal is expected to rebound from low levels. However, ex-China rate hike expectations mean cost support will remain weak in the short term. Steel side, inventory will continue to destock, but demand is expected to peak, coupled with recent weakening in export order-taking and rumors of restrictions on semi-finished products exports, leading to weakened market expectations for exports. Overall, market sentiment has cooled recently, and ferrous metals are likely to remain in the doldrums at the bottom in the short term.
Iron ore: Ferrous metals pulled back after rallying, moving sideways in a narrow range in the short term
Iron ore prices fell sharply this week. From a fundamental perspective, although supply increased, weather impacts slowed shipment growth, limiting short-term pressure. Demand side, steel mill comprehensive profits remained relatively favorable, and rigid demand continued to support iron ore prices. Looking ahead to next week, shipments from Australia and Brazil as well as Guinea in the imported ore market are expected to show notable growth, and global iron ore shipments are expected to continue climbing, further expanding the loose supply landscape. Demand side, based on SMM blast furnace maintenance data estimates, two blast furnaces will resume production after maintenance next week, and hot metal production is expected to edge up. However, considering that end-use demand for finished steel is marginally weakening and destocking is slowing down, if hot metal production continues to grow, the supply-demand imbalance in steel will further intensify, squeezing steel mill profits and suppressing iron ore demand.Iron ore is expected to have limited downside room next week, likely to bottom out and then move sideways.
Coke: Steel mills and coke enterprises will continue to negotiate; market may run stable next week
In terms of supply, coke enterprise production remained stable, and shipments were relatively smooth, with their own coke inventory staying at low levels. Demand side, steel mill operating rates remained high, and daily average hot metal is still expected to increase going forward, with rigid demand for coke showing an increasing trend. However, ferrous metals futures have continued to decline recently, steel profitability has narrowed, and the steel market is already in the off-season for consumption, suppressing coke demand. Meanwhile, most steel mills' coke inventory is at reasonable levels, and their willingness to accept coke price hikes is low. Coking coal: coal mine coking coal production remained stable, and coking coal supply was relatively steady. However, coking coal and coke futures weakened recently, dampening coking coal market sentiment. Traders and other intermediaries accelerated shipments, downstream procurement pace for coking coal slowed down, and new orders signed by coal mines were mediocre. Coking coal inventory at some regional coal mines accumulated, and prices were stable with a slight decline. In summary, the tug-of-war between steel and coke enterprises will continue, and the coke market is expected to remain temporarily stable next week.
Steel Scrap: Steel Mills Mostly Purchasing as Needed to Restock, Short-term Prices May Hover at Lows
Supply side, steel scrap supply was relatively stable recently, with yards showing strong willingness to sell; demand side, as the market weakened and transactions were sluggish, steel mill per-mt profit margins were compressed, and procurement was mostly purchasing as needed to restock. Overall, current supply was slightly loose relative to demand, and with electric furnace mill profits under pressure, their willingness to collect scrap going forward is limited. Short-term steel scrap prices are expected to hover at lows.
Rebar: Significant Divergence in Market Sentiment, Downward Pressure Remains at the Bottom
Rebar prices fluctuated downward this week, with the current nationwide average price at 3,229 yuan/mt, down 46 yuan/mt WoW from last Friday. Supply side, overall profitability of blast furnace steel mills remained relatively favorable, with most mills maintaining previous production levels. This week, a steel mill in east China resumed rolling line production, and production rebounded notably. In some regions, invoice issues made it difficult for electric furnace mills to collect scrap, and some mills reduced operating hours. Additionally, rising costs led to profitability below previous levels, and short-term production will remain at medium-to-low levels. Demand side, falling prices combined with intermittent rainfall in some regions slowed end-user purchase pace, with basically purchasing as needed, and demand pulled back WoW. Inventory side, agents' cargo pick-up pace slowed this week, and steel mill direct-supply demand declined, causing mill inventory to shift from decreasing to increasing, while social inventory continued its destocking trend. According to market sources, sentiment diverged — some believed the supply-demand imbalance was relatively small, and after deep declines were compressed, prices could rebound; while others noted no positive macro news and demand still below expectations, suggesting prices still face downward pressure. Looking ahead, steel mill profit margins remain large, and short-term supply will continue to have room for growth, while demand is about to enter the traditional off-season in June. Supply-demand imbalance will gradually accumulate, and in this tug-of-war between longs and shorts, spot prices are expected to still face downward pressure next week.
HRC: Demand Growth Faces Obstacles, Prices Expected to Be in the Doldrums Next Week
Cold-rolled and hot-rolled prices edged down this week, with overall transactions weakening WoW. In terms of supply, the impact from maintenance on rolling lines decreased WoW this week, and overall HRC production increased. Demand side, apparent demand rebounded slightly this week. Inventory side, SMM-surveyed HRC social inventory was 4.5281 million mt this week, down 185,300 mt WoW, or -3.93% WoW. By region, North China, east China, and Northeast China saw notable inventory drawdowns, central and western regions experienced narrow destocking, while South China continued inventory buildup. Cost side, coking coal and coke futures weakened this week, suppressing coking coal and coke prices. Iron ore was in the doldrums following market trends, and HRC cost support weakened slightly. Looking ahead, insufficient expectations for a fourth round of coke price increases, coupled with ex-China interest rate hike expectations, kept HRC cost support weak. From the HRC fundamentals perspective, HRC demand growth hit a bottleneck this week, and combined with the current off-season impact, further demand increases lacked momentum. Overall, HRC inventory continued to decline, and the supply-demand imbalance was not prominent. Meanwhile, considering the deepening off-season impact, the driving force for further fundamental improvement was relatively small. HRC prices are expected to be in the doldrums next week, with the most-traded contract operating in the 3340-3440 range.
1. Data referenced in this report is available on the SMM database (
2. For more information on SMM steel news, analytical reports, databases, and other content, please contact Li Ping of SMM's Steel Division at 021-51595782.
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