Production Restrictions News Disturbs Market Sentiment, Short-Term Steel Prices Still Fail to Break Through the Upper and Lower Channels [[SMM Steel Industry Chain Weekly Report]]

Forecast for Next Week: Production Restriction News Disrupts Market Sentiment, Short-Term Steel Prices Remain Rangebound

This week, the ferrous metals series fluctuated rangebound, with the nationwide average steel price up slightly WoW. On the news front, the Central Political Bureau of the Communist Party of China held a meeting emphasizing the acceleration of the issuance and use of local government special bonds and ultra-long-term special treasury bonds, as well as timely RRR cuts and interest rate cuts to maintain ample liquidity, strengthen support for the real economy, expand consumption, and stabilize foreign trade, injecting a "booster" into the market. During the week, rumors of production restrictions circulated again, driving up steel futures prices; however, no mandatory production restriction policies were subsequently implemented, leading to a tug-of-war in market sentiment. On Wednesday, the National Bureau of Statistics released data showing that the manufacturing PMI for April was 49.0%, down 1.5 percentage points MoM. Affected by drastic changes in the external environment, the manufacturing PMI in April declined compared to the previous month. In the spot market, steel prices were strong initially but weakened later, with pre-holiday stocking demand slightly below expectations this week. Looking ahead to next week, production restriction news is expected to disrupt market sentiment, increasing price volatility. Fundamentally, the steel market imbalance is not prominent, lacking strong drivers. Steel prices in the first week after the holiday are expected to remain rangebound, with resistance levels for the HC2510 contract at 3,280 and for the RB2510 contract at 3,170.

Iron Ore: Pig Iron Production Peaks, Iron Ore Prices Struggle to Rise

This week, imported iron ore prices dropped slightly. Last Friday evening, news of crude steel production cuts resurfaced, with rumors that provinces such as Hebei, Shandong, Jiangsu, and Shanxi received production restriction notices, weakening market sentiment and dragging down iron ore prices. Fundamentally, due to delayed blast furnace maintenance at some steel mills, daily pig iron production continued to increase slightly by 12,000 mt. Additionally, pre-holiday stocking by steel mills remained incomplete, leading to sustained growth in overall iron ore demand, providing some support for ore prices. However, frequent news of crude steel production cuts during the week limited the upward momentum for iron ore, which fluctuated rangebound with a weak bias. In the spot market, PB fines at Shandong ports fell by 6 yuan/mt WoW. Recently, signals from the Political Bureau meeting and related notices issued by the NDRC have indicated a mildly stimulative macro policy tone. On the fundamental side, although pig iron production has peaked and is expected to decline next week, it remains at a high level. After the holiday, overall procurement activity by steel mills is expected to decrease. Additionally, due to tariff impacts, the manufacturing PMI for April dropped significantly, coupled with increasingly evident off-season characteristics, exacerbating the supply-demand imbalance in the industry. Against this backdrop, iron ore's fundamental support is expected to weaken next week. Considering the low valuation of iron ore, downside potential is limited, and prices are expected to continue a sideways movement next week.

Coke: Mild Macro Expectations, Coke Market to Remain Stable After Labour Day Holiday

Key Points: On the supply side, coke producers' costs have decreased, and improved profits have boosted production enthusiasm, leading to a steady increase in coke production. Shipments are smooth, and coke inventories at producers generally remain low. On the demand side, pig iron production continues to stay at high levels, and steel mills maintain rigid demand for coke. With the Labour Day holiday approaching, some steel mills have slightly restocked. Regarding raw materials, coal mines are operating normally, and downstream coking coal inventories are at safe levels. Pre-holiday restocking willingness is moderate, and online auctions show mixed performance with a high rate of unsold lots, reflecting cautious market sentiment. Overall, while the fundamentals for coke remain solid, macro expectations are mild, and market sentiment is cautious. The coke market is expected to remain stable after the Labour Day holiday.

Rebar: Pre-Holiday Downstream Stocking Demand Released, Caution Against Post-Holiday Price Pullback

This week, rebar prices rose initially and then fell, with the nationwide average price at 3,211 yuan/mt, up 12 yuan/mt WoW. On the supply side, most blast furnace steel mills producing construction materials are profitable. Some mills initially planned maintenance in early May but have postponed it due to production profitability. Additionally, to fulfill billet orders, coastal steel mills have significantly reduced their planned rebar output for May. Recently, steel scrap prices have remained above the psychological expectations of EAF steel mills, causing difficulties in scrap collection and affecting production levels, which generally remain at medium to low levels. However, with electricity price subsidies starting in May in some southwestern regions, some mills may extend operating hours. On the demand side, pre-holiday stocking demand from downstream construction sites was moderate, and overall market transactions performed well. Post-holiday project procurement plans are expected to release another wave of demand, which remains promising. Looking ahead, supply-side pressure is not prominent, and post-holiday demand expectations are likely to support bottom prices. However, considering the slower inventory digestion by steel mills and traders during the holiday, inventory pressure may increase in the first week after the holiday. Post-holiday spot prices are expected to rise, but the increase may be limited. Caution is advised against insufficient demand release post-holiday, which could weaken market sentiment and lead to a price pullback. Attention should be paid to the resistance level of 3,170-3,180 for the RB2510 contract after the holiday.

HRC: Pre-Holiday Destocking Positive, Post-Holiday Focus on Production Restriction Dynamics

This week, HRC futures prices rose initially and then fell, with pre-holiday fluctuations mainly rangebound. On the supply side, steel mills maintained high production enthusiasm, with few new rolling line maintenance activities. This week, the impact of hot rolling maintenance was 40,600 mt, flat WoW. Next week, the impact is expected to increase by 72,000 mt to 112,600 mt, with HRC production continuing to rise. In the spot market, prices in major cities were mostly stable compared to last Friday. On the demand side, pre-holiday downstream restocking demand was moderate, and social inventory continued to decline. However, some traders held bullish expectations for post-holiday prices, standing firm on quotes and reluctant to sell. Overall apparent demand remained high compared to the same period in previous years but fell slightly WoW. On the cost side, steel mills had pre-holiday raw material restocking expectations, with pig iron increasing slightly. Coke fundamentals remained solid, maintaining stable operations in the short term, with overall raw material support being neutral. In summary, macro policy efforts are still anticipated. During the holiday, attention should be paid to tariff negotiation progress, and post-holiday focus should shift to crude steel production reduction dynamics. The HC2510 contract is expected to trade within the 3,150-3,270 range after the holiday.

Steel Scrap: Accelerated Destocking After Labour Day Holiday, Prices Likely to Fluctuate Upward Next Week

On the supply side, with the normalization of economic activities, the overall generation of steel scrap remains relatively stable. Additionally, processing bases maintain a fast turnover mode, ensuring sufficient steel scrap resources. On the demand side, although EAF steel mill profits have improved, they continue to purchase as needed. Blast furnace steel mill profits are moderate, and steel inventory destocking is progressing rapidly. With the Labour Day holiday approaching, steel mills have shown some restocking demand for steel scrap. Overall, the supply-demand imbalance for steel scrap is not prominent, and prices are fluctuating under the influence of the ferrous metals futures series. After the Labour Day holiday, steel scrap inventories are expected to accelerate destocking, and prices are likely to fluctuate upward next week.

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