Macro Meeting Approaching: How Much Further Can Steel Prices Rise This Round? [SMM Steel Industry Chain Weekly Report]

Forecast for Next Week: Macro Meetings Approaching, How Much More Can Steel Prices Rise?

This week, the ferrous metals series ended its recent decline, showing an upward fluctuation trend. On the news front, at the beginning of the week, Jinping Xi attended a symposium with private enterprises and delivered an important speech, emphasizing the broad prospects and significant potential of private economic development, stating that it is the right time for private enterprises and entrepreneurs to shine. Mid-week, the market saw another round of "small essays" discussing the intensity of policy stimulus for 2025, further boosting macro expectations. Overseas, Donald Trump stated that the likelihood of reaching a trade agreement with China is high, to which the Ministry of Foreign Affairs responded that there are no winners in trade wars or tariff wars, significantly improving market sentiment. On the industrial side, the ninth round of coke price cuts was implemented, iron ore continued its upward trend, and in terms of finished steel, futures markets "turned red" this week, with active trading across regions and a surge in spot market transactions.
In the short term, this week's HRC data continued to show strong supply and demand. Next week, a turning point in inventory reduction is expected; the growth in construction material inventory narrowed, and overall inventory levels remained relatively low, with no significant imbalances in the steel fundamentals. With major domestic meetings approaching, steel prices are expected to have room for slight gains next week, with rebar 2505 contract focusing on 3,440 and HRC 2505 contract on 3,550.

Iron Ore: Strong Recovery in Demand, Iron Ore Prices Expected to Fluctuate Upward Next Week

This week, imported iron ore prices showed a weak-to-strong trend. The impact of Australian cyclones on shipments has subsided, coupled with a pullback in the US dollar index, leading to a sharp decline in the most-traded iron ore contract on Monday. However, as downstream demand picked up, steel mill orders improved significantly, rebar apparent demand rebounded rapidly, and finished steel inventory remained low YoY. With the Two Sessions approaching, market news increased, sentiment shifted quickly, and iron ore prices turned from weak to strong. At the port, PB fines prices in Shandong rose by 5-10 yuan/mt WoW. With the end of heavy rains caused by Australian cyclones, global iron ore shipments are expected to recover significantly. However, due to low shipments from Australia and Brazil at the end of January, port arrivals are expected to decline WoW. Currently, high iron ore prices are squeezing steel mill profits. Additionally, steel mills remain cautious about downstream demand growth, leading to low enthusiasm for blast furnace restarts. Pig iron production remains stable with a weak trend, overall iron ore demand is steady, and port inventory may continue to decline slightly. Considering the strong market expectations ahead of the Two Sessions, iron ore prices may continue to fluctuate upward. However, with current high valuations, further upward breakthroughs will be challenging.

Coke: Oversupply Situation Difficult to Improve, Tenth Round of Price Cuts Likely Next Week

Core Viewpoints: In terms of supply, coke plants maintained high operating rates, ensuring ample coke supply. Additionally, downstream buyers were reluctant to purchase, leading to inventory buildup at some coke plants and sluggish sales. On the demand side, end-use demand recovery was slow and below expectations, with pig iron production increasing at a slow pace. Steel mills primarily purchased coke as needed to further suppress coke prices. Regarding fundamentals, coal mines resumed normal production, maintaining high coking coal supply levels, and coking coal inventories remained high. Coking coal supply was relatively loose. Furthermore, end-use demand for finished steel was still in the verification phase, and downstream coke and steel enterprises showed average profits, leading to passive coking coal purchases. In summary, the short-term oversupply situation in the coke market is unlikely to improve, and the market is expected to remain stable with a weak trend. A tenth round of price cuts is likely next week.

Rebar: Demand Recovery Below Expectations, Limited Room for Further Increases in Construction Material Prices Next Week

This week, steel spot prices fluctuated upward. With rising macro expectations, the ferrous metals futures market drove market activity, attracting speculative demand and leading to simultaneous increases in spot market volume and prices. From an industrial perspective, most blast furnace steel mills maintained normal production this week, while EAF steel mills resumed production in clusters. However, constrained by difficulties in sourcing steel scrap and poor production efficiency, they primarily operated during off-peak electricity hours, resulting in a slight increase in overall rebar supply. On the demand side, downstream end-use demand continued to recover. According to reports, demand recovery varied significantly between the south and north, with some southern regions recovering by 50% or more, significantly faster than the north. Overall, end-use demand intensity showed a slight YoY decline. Fortunately, supply growth was limited. This week, the total national rebar inventory reached 7.9316 million mt, up 266,300 mt WoW, with a WoW increase of 3.47%, and the inventory buildup rate narrowed significantly. Overall, after this week's price increases, end-use demand recovery fell short of expectations, and high-price transactions faced resistance, limiting further price increases. Rebar spot prices are expected to fluctuate within a narrow range next week to digest the previous price increases. The most-traded RB2505 contract is expected to fluctuate between 3,250-3,450 next week.

HRC: Gradual Recovery in Market Demand, HRC Prices Expected to Rise Slightly Next Week

This week, HRC prices showed significant strength. In the spot market, demand showed signs of recovery, with improved end-user purchasing and moderate overall market transactions. Looking ahead, on the macro front, the private enterprise symposium sent positive signals, and Donald Trump stated that the likelihood of reaching a trade agreement with China is high, reducing the risk of US-China trade tensions. On the cost side, iron ore prices fluctuated at highs due to disruptions in overseas shipments, while coke prices are expected to see a tenth round of cuts, keeping HRC costs stable for now. Regarding fundamentals, both HRC supply and demand increased, with end-use demand performing well and inventory buildup easing significantly. Overall, with positive expectations for the Two Sessions, gradual recovery in market demand, and stable cost support, HRC prices are expected to rise slightly. The most-traded HRC contract is expected to fluctuate between 3,430-3,580 next week.

Steel Scrap: Downstream Industries Gradually Resume Work, Steel Scrap Demand Increases

On the supply side, steel scrap supply gradually recovered after the Chinese New Year. However, steel mill arrivals and base purchases were below last year's levels. On the demand side, after the Lantern Festival, EAF steel mills gradually resumed production. According to an SMM survey, 74% of electric furnace plants in the sample have resumed production, with the weekly operating rate up 33.16% WoW, and daily steel scrap consumption at steel mills increased overall. Looking ahead, as downstream industries fully resume work, steel scrap demand is expected to continue rising. However, uncertainties remain regarding the pace of supply recovery. If steel scrap supply growth lags behind demand recovery, prices may rise due to increased demand. Future attention should focus on changes in steel scrap supply and demand dynamics and macro policy disruptions.

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