Correction of Pessimistic Expectations, Steel Prices May Hold Up Well Next Week [SMM Steel Industry Chain Weekly Report]

Forecast for Next Week: Pessimistic Expectations Corrected, Steel Prices May Hold Up Well Next Week

This week, after a low-level rebound, the ferrous metals series narrowly pulled back. Among them, iron ore outperformed other ferrous metals, while coke showed weakness. On the macro front, the China-US Geneva Economic and Trade Talks on May 12 indicated a 90-day suspension of the 34% reciprocal tariffs imposed on April 2, 2025, with a 10% portion retained during the suspension period. This temporary tariff relief provides greater possibilities and more ample space for China to rush exports in the short term. However, from a medium and long-term perspective, the easing of the tariff environment is not yet a permanent solution, as the current 30% tariff remains higher than those of other countries. In the spot market, influenced by improved market sentiment, both the spot prices and transaction volumes of hot-rolled coil and rebar have improved. In the short term, according to SMM survey and tracking, some blast furnaces have new annual maintenance plans, leading to a downward trend in pig iron production. However, the decline is limited, and the cost support remains relatively stable. For steel, with the arrival of the rainy season in south China, the potential for increased demand for construction materials is limited. However, the short-term tariff relief and the resilience of manufacturing demand still exist, and the inventory of the five major steel products is expected to continue to decline. Overall, the fundamentals of the steel market can temporarily maintain a good state. With the correction of pessimistic export expectations and moderate cost support, steel prices are expected to hold up well in the short term.

Iron Ore: Supported by Fundamentals & Sentiment, Iron Ore Prices Expected to Continue Rising Next Week

This week, the total global iron ore shipments were 31.62 million mt, down 740,000 mt WoW, a slight decrease of 2.3%. Among them, Australia shipped 17.46 million mt, down 8.3% WoW; Brazil shipped 7.75 million mt, up 13.2% WoW; and non-mainstream mines shipped 6.42 million mt, up 11.6% WoW. The total iron ore arrivals in China were 26.81 million mt, up 1.51 million mt WoW, an increase of 5.96%, and a slight YoY increase of 14%. The supply pressure on iron ore is relatively small, and inventory may continue to decline slightly. The better-than-expected outcome of the China-US tariff negotiations has boosted market sentiment, driving ore prices to rise sharply. Looking ahead to next week, iron ore's own fundamentals are healthy, and overall demand can still provide price support. Against the backdrop of optimistic market sentiment, ore prices are expected to continue to hold up well. In the later stage, focus on the crude steel production reduction policy and the accumulation of major steel inventories.

Coke: Market Expectations Remain Pessimistic, Coke Market May Be in the Doldrums Next Week

In terms of supply, the decline in coking coal prices has led to profit recovery, and coking enterprises have maintained high production enthusiasm, with supply remaining stable at a high level. In addition, coking enterprises are actively shipping goods, and their own coke inventories remain at a low level. On the demand side, steel mills have good profitability, and blast furnace operations remain at a high level, maintaining rigid demand for coke. However, steel mills generally have relatively high coke inventories, coupled with increased expectations of raw material price reductions, leading to cautious procurement strategies by steel mills. Regarding the fundamentals of raw materials, coal mines are operating normally, and the supply of coking coal has increased. Market sentiment is weak, with average spot trading of coking coal. Online auction failures still occur, and coal mine inventories have accumulated slightly. Coking coal prices may continue to face downward pressure. In summary, after the first round of coke price cuts, market expectations remain pessimistic, and the coke market is expected to remain in the doldrums in the short term.

Rebar: Rainfall in South China Affects Demand Release, Fundamental Imbalances Gradually Accumulate

This week, rebar prices fluctuated upward, with the current nationwide average price at 3,208 yuan/mt, up 36 yuan/mt WoW. On the supply side, many blast furnace steel mills still have profits exceeding 100 yuan/mt, maintaining production enthusiasm. Additionally, some regions in Southwest China offer electricity subsidies, improving production efficiency. This week, operating hours have increased, and a few producers have resumed production as planned, leading to a slight increase in electric furnace operating rates. However, considering the difficulty in acquiring steel scrap, most steel mills maintain production at off-peak and mid-peak electricity rates, limiting further production increases. On the demand side, earlier macroeconomic positive news significantly boosted market trading activity. After downstream restocking needs were met, trading performance became relatively average later in the week. Looking ahead, recent overseas tariff disputes have temporarily eased, but market sentiment has largely digested this news. Domestic production restriction rumors persist, but given relatively high production profits, no significant production cuts have been implemented yet. Short-term macroeconomic news stimuli are relatively limited. The supply and demand fundamental imbalance continues to accumulate. Rainy weather in South China is expected to persist in the latter half of the month, affecting downstream construction and making it difficult for demand to achieve significant breakthroughs. Rebar spot prices are expected to face downward pressure in the short term. However, producers currently have strong intentions to refuse to budge on prices, limiting the downside room for prices. The RB2510 contract is expected to trade within the 3,000-3,180 range next week.

HRC: Tariff Reductions Boost Market Sentiment, HRC Prices Have Room for Slight Increase Next Week

This week, HRC prices strengthened amid fluctuations, pulling back slightly towards the end of the week. In terms of supply, the daily average production schedule for HRC in May was lower than in April, easing supply pressure. On the demand side, significant tariff reductions resulting from Sino-US negotiations earlier this week improved market trading sentiment, leading to increased demand and higher purchasing enthusiasm from downstream end-users. Overall market trading conditions improved compared to last week, with HRC inventories in major cities continuing to decline. Looking ahead, on the supply side, the impact of maintenance on hot-rolled production next week is estimated at 226,200 mt, an increase of 15,200 mt WoW, further reducing supply. On the demand side, affected by the off-season, HRC demand has weakened but still shows strong resilience. Overall inventory may continue to destock. On the cost side, iron ore prices are expected to remain strong, while coke prices have started to decline, providing temporary stability to HRC cost support. In summary, the fundamental imbalance in the HRC market is not yet evident, and tariff reductions have boosted market sentiment. The most-traded HRC futures contract is expected to trade within the 3,200-3,280 range next week, with room for a slight increase in HRC prices.

Steel Scrap: Rainy weather disrupts steel scrap recycling and transportation; prices may rise slightly next week

 On the supply side, as futures hold up well, steel scrap prices stabilize, market sentiment improves, traders hold onto their inventory in anticipation of price increases, and shipments decrease slightly. On the demand side, due to electricity subsidies in the southwest region this week, the operating rates of EAF steel mills increased slightly. However, issues such as electric furnace losses and the insufficient cost-effectiveness of steel scrap still limit the growth in steel scrap demand. Overall, as rainy weather increases in some regions, it may have a certain impact on the recycling and transportation of steel scrap. Therefore, it is expected that steel scrap prices may increase slightly next week, but there is insufficient momentum for a significant price rally.

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