Ferrous Metals Risks Begin to Accumulate [SMM Steel Industry Chain Weekly Report]

Forecast for Next Week: Risks in Ferrous Metals Begin to Accumulate

This week, ferrous metals were in the doldrums. The main logic during the week was still the weakening of cost support. On Tuesday, Iran proposed to levy transit fees on the Strait of Hormuz, while Trump released conciliatory remarks stating he was "willing to end military action against Iran even if the Strait of Hormuz remains largely closed." Market expectations for tightening crude oil supply weakened, and the energy sector's decline dragged down the coal sector, weakening the cost logic. During the week, inventories of the five major steel products continued to decline, but apparent demand remained at multi-year lows for the same period, limiting the fundamental-driven momentum for futures. Spot market side, market purchasing enthusiasm was moderate, dominated by restocking at low prices. Spot prices remained relatively firm, and the spot-futures price spread widened.

In the short term, according to SMM survey tracking, daily average hot metal output rose by 25,700 mt WoW this week. The impact of maintenance will continue to diminish going forward, but meanwhile inventory buildup of mainstream ores at the 10 major ports was significant, weakening raw material fundamental support. At the same time, the weight of macro factors may struggle to reach previous levels, and short-term support from the raw material side remains neutral. Steel side, production is expected to gradually rebound going forward, and apparent demand data has been unsatisfactory, making it difficult for the steel supply-demand structure to provide support. Overall, macro logic has weakened, but there remains the possibility of periodic disruptions. Bullish and bearish factors are intertwined in the market. Key attention should be paid to peak-season demand performance and changes in overseas geopolitical situations. In the short term, the market is likely to continue on a fluctuating trend.

Iron Ore: Macro Impact Fluctuates & Fundamentals Weaken, Downside Risk for Prices Next Week

This week, iron ore prices showed a trend of rising first then falling, with the price center shifting downward. Fundamentals still provided some support, but macro news fluctuated, causing commodity prices to move accordingly. In addition, market rumors that long-term contract negotiations had concluded further accelerated the downward pace of futures. Port spot cargoes side, the weekly average price of PB fines at Qingdao Port fell by 11 yuan/mt WoW. Looking ahead to next week, fundamentals side, the impact of the Australian cyclone weather has ended, and global iron ore shipments are expected to rebound. Demand side, no new blast furnace production resumptions or maintenance are scheduled next week, but influenced by earlier production resumptions, hot metal production is expected to edge up. Overall fundamental support is weakening. On the macro front, the two major influencing factors remain uncertain, and news continues to create disturbances for ore prices. However, considering the weak market reaction, coupled with the contract rollover of the most-traded iron ore contract, fluctuations in the 05 contract have narrowed.Imported ore prices are expected to move sideways next week.

Coke: Market May Run Steady Next Week, Further Increases Face Significant Difficulty

In terms of supply, coking enterprises saw a decline in input coal costs. Combined with the full implementation of the first round of coke price increases, losses at coking enterprises narrowed significantly, boosting production enthusiasm. Coke supply was stable with a slight increase, and downstream demand was moderate. Coking enterprises saw smooth shipments, with their own inventory continuing to decline. Demand side, steel mill blast furnaces gradually resumed production, with daily average hot metal production continuing to increase, boosting rigid demand for coke. However, coke arrivals at steel mills were relatively good recently, with most steel mills maintaining coke inventory at mid-level, and overall procurement sentiment was lukewarm. Coking coal side, most mines maintained stable production, but an accident occurred at a coal mine in Lvliang, Shanxi, causing localized coking coal supply shortages. Affected by declining futures, downstream coke and steel enterprises became more cautious in procurement, wait-and-see sentiment increased, coal grades with excessive prior price gains faced growing shipment pressure, and online auction failure rates continued to rise, suggesting the coking coal market may remain in the doldrums in the short term. In summary, coke supply-demand fundamentals shifted toward loosening, coupled with weakening cost support for coke recently. The coke market may remain stable in the short term, with further price increases facing significant difficulty.

Steel Scrap: Mild Adjustment in Supply-Demand Pace, Steel Scrap Market Operating Cautiously

Supply side, the pace of steel scrap resource release slightly accelerated this week, with steel mill steel scrap arrivals edging up accordingly. Demand side, electric furnace steel mill operating rates and capacity utilization rates both saw slight rebounds this week, but constrained by enterprise profitability, the room for sustained production increases at electric furnace mills remained relatively limited. According to SMM survey, the operating rate of 50 major construction material-producing electric furnace steel mills nationwide was 41.42% this week, up 1% WoW; capacity utilization rate was 42.6%, up 0.86% WoW. Overall, current market sentiment remained cautious, with traders mostly adopting a quick-in-quick-out approach. Short-term steel scrap prices are expected to continue moving sideways, with subsequent focus on finished product spot transactions and electric furnace mill profit recovery.

Rebar: Regional Sentiment Diverged, Weak Fundamental Drivers

Rebar prices consolidated this week, with the current nationwide average price at 3,143 yuan/mt, down 2 yuan/mt WoW. Supply side, some electric furnace mills slightly increased operating hours recently, mainly because comprehensive profitability improved after adjusting specification surcharges, but producing mid-range specifications remained loss-making. Given that profitability is unlikely to see significant improvement going forward, operating levels are expected to largely hold steady. This week, some blast furnace mills adjusted their product mix, increasing rebar and reducing wire rod, causing overall production to edge down slightly. Most steel mills are expected to maintain prior production levels next week. Demand side, rainy weather in east China hampered shipments, while in other regions, weakening futures dampened market sentiment, resulting in generally lackluster overall shipments, with peak-season demand release falling somewhat short of expectations. Inventory side, although mill inventory and social inventory continued to decline this week, the overall inventory destocking slope remained gradual, mainly because social inventory drawdown was slower than in previous years. Short-term focus will remain on the pace of total inventory destocking. It was learned that regional sentiment currently diverged, with producers in northern regions mostly holding prices firm while shipping, whereas the southwest region showed signs of leading prices lower in an effort to accelerate inventory destocking or transfer. Looking ahead, rebar fundamentals lacked strong drivers and had yet to establish a trending move. In the short term, the market was expected to continue accelerating destocking speed, with insufficient support for spot price increases. Spot prices are expected to continue to move sideways next week.

HRC: Apparent Demand Not Optimistic, Room for Price Decline Next Week

This week, the average HRC price edged down slightly, with overall transactions turning slightly weaker WoW. In terms of supply, rolling line maintenance increased this week, and overall HRC production declined. Demand side, market demand performed poorly this week, declining instead of increasing, with a generally lackluster trading atmosphere. Inventory side, SMM-tracked HRC social inventory stood at 5.5039 million mt this week, down 19,000 mt WoW (-0.34%). The nationwide social inventory decline slowed down this week. By region, east China and north China saw inventory buildup WoW, while northeast China, south China, and central China saw destocking WoW. Cost side, coke prices increased and took effect this week, but ore prices edged down slightly, resulting in only a marginal strengthening of HRC cost support. Looking ahead, the supply-demand imbalance in HRC fundamentals persisted, with expectations of gradually increasing production going forward. Apparent demand data remained weak, and the HRC supply-demand structure could hardly support current prices. Overall, macro logic weakened, fundamental factors carried more weight, and bearish factors were relatively prevalent in the market. Therefore, the most-traded HRC contract is expected to trade in the range of 3,230-3,320 next week.

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