No conclusion is likely to be reached in tariff negotiations in the short term, and steel prices are in the doldrums in the short term [SMM Weekly Report on Steel Industry Chain]

Forecast for next week: Tariff negotiations unlikely to reach a conclusion in the short term; steel prices expected to remain in the doldrums

This week, the ferrous metals series remained in the doldrums, with the average price of steel products dropping slightly WoW. On the news front, the People's Bank of China and two other departments held a press conference on the morning of the 7th to introduce the "package of financial policies to stabilize the market and expectations," including measures such as a 0.5 percentage point reduction in the reserve requirement ratio (RRR), an expected injection of approximately 1 trillion yuan in long-term liquidity into the market, and a 0.25 percentage point reduction in the interest rate for personal housing provident fund loans. These positive policies boosted market sentiment to some extent, but steel futures prices briefly surged before weakening again. The Caixin China General Manufacturing Purchasing Managers' Index (PMI) for April stood at 50.4, down 0.8 percentage points from the previous month. The impact of the US tariff hikes gradually emerged, with the expansion rate of China's manufacturing sector slowing down in April and the business climate index falling to its lowest level since February. Additionally, following the recent announcement by China that it would hold talks with the US, the US still indicated that it would not lower tariffs before initiating negotiations with China and hinted that the talks were not proposed by the US side. In the spot market, affected by the Labour Day holiday, the apparent demand for the five major steel products fell sharply this week.

Looking ahead to next week, it is expected that the Sino-US tariff negotiations will unlikely reach a conclusion in the short term. Rumors of production restrictions on the domestic supply side have been circulating intermittently, increasing the uncertainty in the macro and industrial news landscape. From a fundamental perspective, as we enter May, steel demand is expected to gradually weaken amid the off-season. Considering that the current inventory of the five major steel products is lower than the same period in previous years, and the fundamental imbalance is relatively small before the end of the month, it is anticipated that steel prices will continue to remain in the doldrums next week. Attention should be paid to the support levels at 2980 for the rb2510 contract and 3130 for the hc2510 contract.

Iron ore: Prices jump initially and then pull back, remaining in the doldrums with a weakening bias

This week, the imported iron ore market exhibited a trend of jumping initially and then pulling back. The State Council's press conference after the holiday released a package of positive financial policies, which briefly boosted market sentiment and drove up futures prices. However, details soon emerged that steel mills in multiple provinces had received verbal notifications about reducing crude steel production, exacerbating concerns about demand amid an already loose supply and demand balance for iron ore. Coupled with a significant weakening in end-use consumption and expectations of a turning point in pig iron production, these factors collectively led to a maximum intraday decline of 2.05% in the most-traded I2509 iron ore futures contract. Looking ahead to next week, under the dual pressures of increasing supply and weakening demand, it is expected that iron ore prices will continue to remain in the doldrums with a weakening bias. There is a possibility of fluctuations in the Sino-US tariff negotiations, and close attention should be paid to the impact of related developments over the weekend on market sentiment.

Coke: Market sentiment turns bearish; price cuts expected in the coke market next week

In terms of supply, most coking enterprises are maintaining profits and have high production enthusiasm, keeping coke output at a high level. Moreover, coke shipments remain moderate, and inventory levels are maintained at a low level.On the demand side, steel mills' profitability remains moderate, with blast furnace pig iron production fluctuating at highs, indicating strong demand for coke. However, steel mills' coke inventories are at a moderately high level, and purchasing is mainly done as needed. Regarding the fundamentals of raw materials, coal mines are operating normally, with relatively abundant supply. The pace of downstream procurement has slowed down, and market activity has decreased. Some coal mines have seen a slowdown in shipments, leading to inventory accumulation. In the Linfen region, prices for certain coal types have already started to pull back slightly. Overall, the fundamental imbalance in the coke market is relatively small. However, market expectations for finished steel are relatively pessimistic. Additionally, the cost support for coke has weakened recently, and market sentiment has turned bearish. Next week, the coke market is expected to remain in the doldrums, with expectations of price reductions.

Rebar: Risk of Accumulating Supply-Demand Imbalance, Spot Prices Under Pressure

This week, rebar prices have been in the doldrums, with the nationwide average price at 3,172 yuan/mt, down 39 yuan/mt WoW. On the supply side, according to SMM's production schedule data, some steel mills in North and Northwest China have experienced shortages of coiled rebar specifications for project supplies. To replenish market resources, there has been a slight shift in pig iron production towards coiled rebar in May. Additionally, most blast furnace steel mills are generating positive cash flow profits, with some manufacturers planning to reduce HRC production and increase construction steel output. Recently, some EAF steel mills have completed maintenance and have production resumption plans. The operating rate is expected to increase slightly next week. However, considering that spot prices are still in a phase of continuous bottoming out, it is difficult to acquire high-quality steel scrap at a reasonable cost, and the profitability of electric furnaces is unlikely to improve significantly. The potential for production increases is limited. On the demand side, there has been a slight increase in market demand in some areas after the holiday, but the increase in rainy days in south China has restricted construction progress at downstream construction sites. It is highly probable that demand will remain weak in the later period. Overall, steel mill production is currently profit-driven. With blast furnace steel mills generally generating positive cash flow profits, the momentum for producing construction steel remains strong. However, as demand gradually transitions into the off-season, the increase in supply and decrease in demand are not conducive to spot price strength. It is expected that the spot price of construction steel will remain under pressure in the short term. The RB2510 contract is expected to trade within the 2,950-3,150 range next week.

HRC: Unclear Upside Drivers, Prices to Continue Oscillating and Bottoming Out

After the holiday, HRC futures prices first rose and then fell, with spot price fluctuations being narrower. On the fundamental side, there have been few new maintenance shutdowns at steel mills, and HRC production has decreased slightly by 4,700 mt. After the holiday, some end-users had restocking demand, but it was difficult to sustain. Social inventories increased WoW, but the cumulative YoY increase was significantly lower than in previous years. Meanwhile, steel mills actively shipped products. Under the combined influence, total inventory reached 4.5897 million mt, increasing by 47,400 mt WoW, with a YoY increase of only 1.04%. Looking ahead, some steel mills in North and East China have new maintenance plans. Additionally, according to SMM's latest production schedule survey, the daily average production in May has decreased, and supply pressure will ease.With the upcoming rainy season in south China, the sustainability of demand may be in question. However, in the short term, the supply-demand imbalance is relatively small. It is expected that inventory may stop increasing and start decreasing next week. According to the SMM survey, pig iron shows a trend of peaking, and cost support is weakening. Overall, the short-term contradiction in HRC is not prominent. The macro environment has once again entered a vacuum period. In May, the focus will be on the sustainability of domestic demand. Currently, the performance of steel mills in taking orders for May is moderate, but the short-term upward driving force is unclear. It is expected that the HC2510 contract may fluctuate rangebound within the 3140-3280 range next week.

Steel Scrap: Supply Recovery vs. Stagnant Demand, Increased Risk of Price Decline

On the supply side, after the Labour Day holiday, traders and logistics transportation have returned to normal. The steel scrap resources that were previously limited by the holiday will gradually enter the market, and the amount of tradable steel scrap is expected to increase. On the demand side, due to poor profits and weakened expectations for steel market demand, two additional electric furnace mills have halted production for maintenance this week, leading to a decrease in demand for steel scrap. This week, the operating rate of 50 electric furnace steel mills producing construction materials nationwide was 36.52%, down 1.82% from the previous period on a WoW basis. Overall, the steel scrap market this week shows a pattern of weak supply and demand. Next week, the supply of the steel scrap market is expected to increase. However, if the increase in demand does not meet expectations, steel scrap prices may drop slightly.

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