Which Comes First, Demand or Macro Tailwinds? Limited Downside for Short-Term Steel Prices [SMM Steel Industry Chain Weekly Report]

Forecast for Next Week: Which Will Arrive First, Demand or Macro Optimism? Limited Downside for Steel Prices in the Short Term 

In the first week after the holiday, the ferrous metals series showed a trend of initial decline followed by a rebound. On the news front, during the Chinese New Year holiday, the US Fed decided at its January monetary policy meeting to keep the federal funds rate target range unchanged at 4.25%-4.5%. Subsequently, on February 1 local time, Trump signed an executive order imposing a 10% tariff on Chinese exports to the US, a 25% tariff on imports from Canada and Mexico, and a 10% tariff on energy resources from Canada, effective February 4. Domestically, DeepSeek emerged, drawing global attention. In the spot steel market, some enterprises gradually resumed operations this week, but downstream demand recovery still requires time, and market transactions showed mediocre performance.
In the short term, raw material prices are trending upward due to disruptions in overseas shipments. For finished steel, demand is entering a verification phase, coupled with a new cold wave this week, drawing attention to the recovery of end-use demand starting next week. On the other hand, there are still strong expectations for favorable macro policies in Q1, which may enter a "warming-up" phase in mid-to-late February. Overall, macro expectations and raw material prices continue to provide support, leaving limited downside for steel prices in the short term, awaiting new drivers from either demand or the macro perspective.

Iron Ore: Active Restocking by Steel Mills After the Holiday, Iron Ore Prices Fluctuate Upward

This week, iron ore prices showed a trend of initial weakness followed by strength. On the macro front, during the Chinese New Year holiday, Trump signed an executive order imposing a 10% tariff on Chinese exports to the US and a 25% tariff on imports from Canada and Mexico. However, the instability of this policy caused market sentiment to fluctuate, leading to significant volatility in iron ore futures prices on the first trading day after the holiday. On the fundamentals, domestic steel mills gradually resumed blast furnace operations, with pig iron production slightly rebounding. Combined with the release of restocking demand after the holiday, overall demand for iron ore increased. Although global iron ore shipments recovered, domestic rain and snow weather and the holiday affected work efficiency, leading to a slight decline in port arrivals and easing supply pressure. Supported by fundamentals, iron ore prices continued to fluctuate upward. In terms of port prices, PB fines in Shandong rose by 15 yuan/mt WoW. Recently, frequent cyclones in the Southern Hemisphere have impacted shipments from Australian ports, and global iron ore shipments are expected to decrease again. Meanwhile, a new cold wave in China may reduce port unloading efficiency, making it difficult for port arrivals to increase significantly. On the demand side, the pace of steel mill resumption has slowed, and pig iron production is expected to decline slightly next week, with iron ore demand remaining stable with a weak trend. Overall, the current supply-demand imbalance in the industry is not significant, and with enhanced expectations for policies during the Two Sessions, iron ore prices are expected to hover at highs next week.

Coke: Market Sentiment Mainly Bearish, Coke Prices Expected to Decline Next Week

Core Viewpoints: In terms of supply, coke plants maintained stable operations, with overall supply remaining loose. However, profit margins are limited, and some coke plants are even experiencing losses. On the demand side, some steel mills still have maintenance plans after the holiday, and with coke inventory at high levels, steel mills maintain a desire to bargain down prices. Regarding raw materials, coal mines are gradually resuming production. Private coal mines are undergoing maintenance and training, leading to slow resumption, while state-owned coal mines have started production, increasing daily coking coal supply. Online auction failure rates remain high, and new transaction prices are still lower than the most recent pre-holiday auction prices. Additionally, the risk of coke price declines continues to weigh on coking coal prices. In summary, market sentiment is predominantly bearish, and coke prices are expected to decline next week.

Rebar: Weak Demand Drives Sentiment-Led Trading, Construction Steel Prices May Fluctuate Upward Next Week

This week, construction steel spot prices remained relatively stable. After the Chinese New Year holiday, market participants gradually resumed operations, but downstream end-use demand is expected to recover gradually around the Lantern Festival. Under weak demand, futures fluctuated, and market participants remained cautious, resulting in limited transactions during the week. On the supply side, blast furnace steel mills currently maintain moderate profitability, and with a new round of coke price cuts, there are expectations for increased production. EAF steel mills are gradually resuming production starting February 7, leading to a short-term increase in construction steel supply. However, supply levels remain relatively low YoY. In terms of inventory, according to the SMM survey, national rebar inventory reached 6.6117 million mt in the first week after the holiday, an increase of 2.1327 million mt from pre-holiday levels, up 47.62% WoW but down 32.64% YoY on a lunar calendar basis, with inventory remaining at low YoY levels. On the demand side, downstream end-use demand is expected to recover gradually around the Lantern Festival. Before that, market transactions are largely influenced by sentiment. Currently, low production and low inventory provide some support for spot prices. With slightly stronger iron ore prices and market optimism for price increases, construction steel spot prices are expected to fluctuate upward next week, with the most-traded rebar contract RB2505 likely to fluctuate within the range of 3,300-3,450.

HRC: Post-Holiday Demand Recovery Still Requires Time, HRC Prices May Show a Fluctuating Trend Next Week

In the first week after the holiday, HRC prices showed a trend of initial decline followed by a rebound. In the spot market, mainstream market participants gradually resumed operations this week, but downstream sentiment remained cautious, and demand recovery still requires time, resulting in mediocre overall transactions. Looking ahead, on the macro front, Trump signed an executive order imposing a 10% tariff on Chinese exports to the US. On the cost side, iron ore prices are expected to strengthen due to disruptions in overseas shipments, while coke prices are expected to decline. These factors offset each other, keeping HRC costs stable for now. On the demand side, a new cold wave is approaching, and end-use demand is entering a verification phase, with a neutral impact on prices for now. Overall, with positive expectations for the Two Sessions and cost support still in place, the downside for HRC prices is limited. The most-traded HRC contract is expected to fluctuate within the range of 3,380-3,530 next week.

Steel Scrap: EAF Resumption Imminent, Steel Scrap Prices Expected to Fluctuate Next Week

After the Chinese New Year holiday, some steel mills and bases gradually resumed operations and scrap collection. However, as worker resumption and logistics have not fully recovered, overall steel scrap circulation remains moderate, with operating steel mills primarily consuming inventory. From a fundamental perspective, blast furnace steel mills mostly maintained normal production during the holiday, while EAF steel mills were shut down, with resumption expected after the tenth day of the lunar calendar. Post-holiday demand recovery still requires time. Overall, as the holiday has just ended and the market has not fully resumed operations, fundamental imbalances are not significant. Steel scrap prices are expected to fluctuate in the short term.

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