As Chinese New Year Approaches, Steel Prices Are Expected to Fluctuate Upward Before Stabilizing [SMM Steel Industry Chain Weekly Report]

Forecast for Next Week: As the Chinese New Year Approaches, Steel Prices Are Expected to Fluctuate Upward Before Stabilizing

This week, the ferrous metals series fluctuated upward. Overseas, the US December non-seasonally adjusted core CPI YoY recorded 3.2%, slightly below expectations, fueling expectations of interest rate cuts. Domestically, at the beginning of the week, Pan Gongsheng, Governor of the People's Bank of China, stated at the 18th Asian Financial Forum that risks in the real estate market have significantly weakened, and overall transaction levels have improved. Subsequently, the latest data from the General Administration of Customs showed that China exported 9.727 million mt of steel in December 2024, up 4.8% MoM; cumulative steel exports from January to December totaled 110.716 million mt, up 22.7% YoY, marking an impressive performance for 2024 steel exports! Mid-week, the State Council Information Office held a press conference on "China's High-Quality Economic Development Achievements," once again highlighting the determination to promote economic recovery through policies. On the industrial side, steel inventory data was released, showing strong resilience in downstream demand during the second week before the holiday. In the spot market, as the Chinese New Year approaches, stronger steel prices this week improved market sentiment.
In the short term, pig iron production is expected to continue increasing, solidifying cost support. For steel, current rebar inventory is at a five-year low, and the pace of HRC inventory buildup is significantly slower than in previous years. The imbalance in steel fundamentals is relatively low. Considering the macro policy vacuum and the upcoming Chinese New Year, steel prices are expected to fluctuate upward before stabilizing, with attention on whether post-holiday supply and demand dynamics will trigger a new round of price rebounds.

Iron Ore: Macro Sentiment Weakens, Prices Expected to Fall Back from Highs Next Week

This week, iron ore prices rose sharply. A series of macroeconomic announcements boosted market sentiment. On the fundamentals side, heavy rains in the Southern Hemisphere caused Brazil's shipments to drop by 25%, reducing supply. However, despite a slight rebound in pig iron demand driving iron ore demand, the nearing end of pre-holiday stockpiling by steel mills led to reduced purchasing enthusiasm, suppressing port spot prices and narrowing the spot-futures price spread. In terms of port prices, PB fines in Shandong rose by 20-25 yuan/mt WoW.
Looking ahead to next week, global shipments are expected to decline due to cyclones in Australia and the rainy season in the Southern Hemisphere, but port arrivals are likely to increase slightly. On the demand side, according to SMM's blast furnace maintenance data, the number of blast furnaces resuming production next week will still exceed those under maintenance, leading to a larger increase in pig iron production. Considering that pre-holiday stockpiling by steel mills will largely conclude next week, support for ore prices will weaken. Additionally, with heightened market risk aversion following Trump's inauguration, iron ore prices are expected to lose upward momentum and face the risk of falling back from highs.

Coke: Oversupply Situation Unlikely to Improve, Prices May Remain Stable with a Weak Trend Next Week

Key Insights: In terms of supply, coke plants are operating at high levels and actively shipping, but their coke inventories continue to accumulate. On the demand side, recent favorable macro news has improved market sentiment, but steel mills' coke inventories remain at reasonable levels, with purchasing as needed and controlled arrivals. For raw materials, as the Chinese New Year approaches, private coal mines are gradually shutting down, reducing coking coal supply. However, downstream purchasing remains on an as-needed basis, with some coal mines facing significant sales pressure and inventory accumulation. Online auction results showed mixed performance, but most coal types saw declining transaction prices, reflecting weak market sentiment. In summary, the oversupply situation for coke is unlikely to improve, and cost support remains unstable. In the short term, coke prices may remain stable with a weak trend, with the market still anticipating potential price cuts.

Rebar: Market Gradually Shuts Down, Prices Expected to Stabilize Next Week

This week, construction steel spot prices fluctuated upward. Favorable macro news and upward fluctuations in rebar futures boosted spot market sentiment. Steel mills, operating at low production levels, actively raised ex-factory prices, stimulating some winter stockpiling demand, while end-use demand continued to weaken. On the supply side, the impact from maintenance at blast furnace steel mills decreased slightly this week, while EAF steel mills concentrated maintenance shutdowns between January 15-20, with post-holiday resumption expected between the 10th and 15th days of the lunar new year. On the demand side, as the annual Spring Festival travel rush begins, migrant workers are gradually returning home. Most ongoing projects are expected to halt around January 20, with some guaranteed housing and large-scale infrastructure projects continuing until just before the Chinese New Year. End-use demand will gradually pause and resume after the holiday. Next week, construction steel inventory buildup is expected to accelerate. Looking ahead, as market participants and end-users gradually shut down, market activity will weaken. Spot prices are expected to stabilize, with the RB2505 contract likely to fluctuate between 3,200-3,380.

HRC: As the Chinese New Year Approaches, HRC Prices Expected to Briefly Surge Before Fluctuating Next Week

This week, HRC spot prices rose significantly. On the fundamentals side, the number of hot rolling production line maintenance at steel mills decreased this week, leading to increased weekly HRC production. Meanwhile, market demand also improved, with downstream end-users showing higher purchasing enthusiasm, alleviating the imbalance in HRC fundamentals. Looking ahead, news of RRR cuts and interest rate cuts by the PBOC, combined with a slower pace of HRC inventory buildup compared to previous years, indicates a relatively low imbalance in HRC fundamentals, supporting HRC prices. On the cost side, short-term coke prices are still expected to decline, while iron ore prices fluctuate, slightly weakening cost support for HRC. Overall, with relatively low fundamental imbalances and strong market confidence as the Chinese New Year approaches, HRC prices are expected to briefly surge before fluctuating, with the most-traded contract likely to range between 3,410-3,560.

Steel Scrap: As the New Year Approaches, Arrivals Decline

As the New Year approaches, some steel mills have begun maintenance, reducing steel scrap usage. However, considering that scrap-generating enterprises are also gradually shutting down and current steel scrap inventories are low, market resources remain relatively tight. Additionally, most yards are now in year-end wrap-up mode, leading to reduced arrivals at steel mills, which provides some support for steel scrap prices. Overall, with weak supply and demand, market activity remains moderate, and fundamental imbalances are not prominent. In the short term, steel scrap prices are expected to maintain a fluctuating trend, with a range of (-50, 50) yuan/mt.

1. For data mentioned in this report, please visit the SMM database (https://data-pro.smm.cn/).

2. For more content on SMM steel information, analysis reports, and databases, please contact Li Ping from the SMM Steel Division at 021-51595782.

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