SMM Analysis: Ferrous Metals Market to Remain Stuck in Downward Spiral

SHANGHAI, Jul 4 (SMM) –  Ferrous metals prices took a nosedive across the board at the opening of today’s daytime session. As of noon, iron ore futures closed at 5.5% at 722 yuan/mt, rebar futures closed down 3.11% at 4,181 yuan/mt, while HRC closed down 3.4% at 4,202 yuan/mt.

Ferrous metals market saw a brief rally last week, but fell again at the beginning of this week. Covid-19 infections in Anhui, Jiangsu and other places of China increased over this past weekend. A major property developer defaulted, weighing on market sentiment. 

In terms of fundamentals, supply and demand remain in an imbalance. It will take time for steel mill production reduction to have an impact. Ample raw material supply and slow recovery of end demand are two major factors that weigh on the ferrous metals market.  

In terms of iron ore, the imbalance between supply and demand still exists. As of July 1, a total of 46 blast furnaces have been overhauled, affecting 166,000 mt of pig iron output per day. Demand for iron ore is unlikely to improve in the short term. Iron ore port inventory has shown an inflection point. As of July 1, the port inventory rose by 650,000 mt when compared with last week. Shipments from Australia and Brazil tend to grow in the future. Given the excess supply, imported iron ore prices will continue to decline. 

In terms of rebar, the slump in steel prices caused losses on some steel mills with blast furnaces, forcing many to shut down for maintenance. The operating rates of rebar mills with electric furnaces fell to a new low in the year, except for the low seen during the Chinese New Year. The off-season, drought in the north, and floods in the south have hurt the end demand. Despite output cuts by steel mills, the decline in steel supply was limited. 

In terms of HRC, the output of HRC increased significantly last week, and the supply pressure continued to rise. Due to poor end demand, inventories in many places have accumulated to high levels. According to SMM survey, the maintenance plans that steel mills have announced so far will have little impact on the overall supply of HRC. The short-term HRC production will remain stable. Overseas HRC prices also continuing to drop amid weak demand. Since iron ore and coke prices still have downside risks, it is expected that HRC prices may continue to fall this week.