Industry Imbalance Not Prominent for Now, Limited Downward Space for Steel Prices [SMM Steel Industry Chain Weekly Report]

Forecast for Next Week: Industrial Imbalances Are Not Prominent; Limited Downside for Steel Prices

This week, the ferrous metals series fluctuated downward. Recently, domestic and international information has been released alternately. The US January non-seasonally adjusted CPI YoY was 3%, higher than the previous value and expectations, prompting traders to adjust the timing of the next US Fed interest rate cut from September to December. On February 10 (local time), the US President signed an executive order imposing a 25% tariff on all steel and aluminum imports into the US, raising concerns about the impact on indirect exports and re-export trade. Subsequently, on February 11, Indian Steel Minister H.D. Kumaraswamy announced that India would impose provisional tariffs of 15%-25% on steel products from China within the next six months. Domestically, mid-week, Premier Qiang Li chaired a State Council executive meeting to discuss measures to boost consumption. Zheng Zhajie, Secretary and Director of the National Development and Reform Commission, published a signed article in the journal "Study and Research," mentioning the need to strengthen counter-cyclical macro policy adjustments, implement more proactive fiscal policies, and moderately loose monetary policies, and deploy a stimulus policy package. On the industrial side, the eighth round of coke price cuts was fully implemented, while the supply side of iron ore remained affected. Some downstream enterprises had not resumed work this week, coupled with fluctuating downward steel prices, leading to cautious terminal procurement.
In the short term, this period's HRC data showed relatively strong supply and demand, while rebar exhibited weaker supply and demand, though the pace of inventory buildup and inventory levels were moderate. Considering the upcoming important meetings, heightened macro expectations, and the absence of significant industrial imbalances, steel prices are expected to have limited further downside.

Iron Ore: Tug-of-War Between Longs and Shorts Intensifies; Prices Fluctuate Considerably

This week, iron ore prices fluctuated upward, with spot prices rising by 5 yuan/mt WoW. Domestic concentrate prices also increased by approximately 5 yuan/mt. Looking ahead to next week, the impact of the Australian cyclone is expected to end this weekend, leading to a significant recovery in iron ore shipments. However, due to previously low shipment levels, port arrivals are likely to remain low. Meanwhile, pig iron production is expected to increase slightly, coupled with restocking demand from domestic steel mills, driving overall demand for iron ore. Port inventories may decline, providing support for ore prices. As the Two Sessions approach, market expectations for macro policies are strengthening, though concerns over steel tariffs may continue to affect sentiment.Amid the tug-of-war between longs and shorts, iron ore prices are expected to continue fluctuating considerably next week.

Coke: Market Sentiment Remains Bearish; Ninth Round of Price Cuts Expected Next Week

Key Insights: In terms of supply, coke production remains stable, but some coke enterprises are experiencing significant inventory buildup. On the demand side, steel prices are declining, and steel mills' willingness to push for price reductions continues to rise. Steel mills are cautious about resuming production, with slow increases in pig iron production and coke inventories at safe levels, leading to low enthusiasm for coke procurement. Regarding raw materials, coal mine resumption is accelerating, and coking coal production continues to increase, adding supply pressure. On the demand side, steel mills remain in a loss-making phase, and the eighth round of coke price cuts has been fully implemented, compressing coking profits and leading to cautious coking coal procurement.In summary, coke prices are likely to continue fluctuating downward in the short term.

Rebar: Weak Demand vs. Macro Expectations; Construction Steel Prices to Fluctuate Next Week

This week, spot prices in the national construction steel market fluctuated downward. As of February 14, the national average price of rebar was 3,347 yuan/mt, down 55 yuan/mt WoW. From an industrial perspective, rebar production remained largely unchanged this week. Currently, blast furnace steel mills are mostly maintaining normal production, while EAF steel mills have gradually resumed production after the Lantern Festival. However, due to incomplete resumption of steel scrap processing bases during the Chinese New Year, steel scrap circulation remains limited. The operating rate and capacity utilisation rate of electric furnaces are still relatively low. On the demand side, downstream sectors are gradually resuming work, but demand recovery is slow. Construction steel inventories are still building up, though the pace has narrowed. This week, national rebar inventory reached 7.6652 million mt, up 1.0535 million mt WoW, an increase of 15.93%. Overall, the market is currently characterized by low production, low demand, and moderate inventory pressure, with no significant fundamental imbalances. On the macro side, expectations for the Two Sessions are rising. Amid market dynamics, construction steel prices are expected to fluctuate next week. Future focus should be on demand recovery and macro policy changes. The most-traded rebar contract RB2505 is expected to fluctuate within the range of 3,250-3,450 next week.

HRC: Demand Enters Verification Phase; Will HRC Rebound Next Week?

This week, HRC futures and spot prices declined slightly. From a fundamental perspective, HRC production increased by 37,700 mt WoW, with significant supply growth. Post-holiday market activity has picked up, but supply growth still outpaces demand growth. Social inventory continues to build, and in-plant inventory has also increased. Total inventory reached 5.8334 million mt, up 396,700 mt WoW. Looking ahead, short-term new maintenance for hot rolling is limited. According to the SMM survey, steel mills' enthusiasm for HRC production in February remains high, with daily average production increasing. Supply is expected to remain at a high level, while full resumption of terminal operations may take time. Short-term pressure persists for HRC inventory to shift from accumulation to reduction. On the raw material side, trends are diverging, with iron ore likely to fluctuate upward, providing short-term cost support. Overall, the announcement of Trump's tariff policy has landed, and follow-up policies from other countries may still disrupt the futures market. However, excessive pessimism is unnecessary. As the Two Sessions approach and terminal demand enters a recovery phase, the two factors may offset each other. The HC2505 contract is expected to fluctuate upward next week, within the range of 3,350-3,500.

Steel Scrap: Fundamental Imbalances Are Not Prominent; Prices Likely to Fluctuate Next Week

On the supply side, steel scrap processing bases have gradually resumed operations, but market circulation of steel scrap remains relatively low, with low purchase volumes. On the demand side, blast furnace steel mills are maintaining normal production, but recent futures market weakness and declining finished steel prices have resulted in moderate profitability. EAF steel mills are gradually resuming operations. According to the SMM survey, as of February 11, 10% of electric furnace plants in the SMM sample had resumed production, with most others resuming after the Lantern Festival. The operating rate of electric furnaces this period was 7.2%, down 0.98% WoW. Subsequent raw material stocking demand is expected to gradually release.Overall, fundamental imbalances in the steel scrap market are not significant, and prices are expected to fluctuate in the short term.

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