The fluctuation range of ferrous metals series narrows, with a focus on changes in exports [SMM Steel Industry Chain Weekly Report]

Forecast for Next Week: Ferrous Metals Series to See Narrower Fluctuations, with Focus on Export Changes

This week, ferrous metals fluctuated rangebound, with iron ore continuing to outperform other ferrous metals, while coke showed weakness. On the macro front, China's National Bureau of Statistics released macroeconomic data for January-April, revealing that real estate data remained sluggish, with significant YoY declines in steel-related investments and new construction starts. Overseas, the US composite PMI and manufacturing PMI both rebounded, driving manufacturing firms to stockpile in May amid concerns over future supply deficits. In the spot market, futures fluctuations were narrow this week, with tepid market sentiment. The construction materials market saw weakened demand due to high temperatures and rainy weather. 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, though absolute levels remain high, limiting the loosening of cost support. For steel, with the arrival of the high-temperature and rainy season, construction material demand is set to slow down, but manufacturing demand remains resilient. Supported by profits, the decline in exports is limited, and the inflection point for the five major steel products' inventory has yet to appear. Overall, the fundamental aspects of steel can temporarily maintain a good state, with no immediate risk of a decline in exports. Coupled with moderate cost support, steel prices are expected to fluctuate weakly in the short term on the current basis, with previous support levels difficult to break through effectively.

Iron Ore: Intensified Tug-of-War Between Supply and Demand, Prices Continue to Fluctuate Weakly

This week, the imported iron ore market experienced repeated fluctuating trends, with the price center gradually moving downward. Early in the week, market expectations for improved demand heated up due to monetary easing signals such as the LPR cut. However, on Thursday, the State Council meeting focused on the technology sector, providing limited support to ferrous metals, and market sentiment remained weak. Supply-side disruptions, such as adjustments to mining licenses in Guinea and a port accident in Peru, briefly pushed up ore prices. However, seasonal weakness in end-use demand combined with a continuous decline in apparent consumption ultimately suppressed prices, causing them to weaken again. The spot market performed relatively steadily. Taking PB fines at Shandong ports as an example, the weekly average price fell by 8 yuan/mt WoW. Looking ahead to next week, iron ore's own fundamental aspects are expected to see weak supply and demand. It is worth noting that high steel exports partially offset weak domestic demand, providing some support to ore prices. Overall, under the influence of weak industry expectations, ore prices are expected to continue facing downward pressure next week, showing a narrow and weak fluctuating trend.

Coke: Market Expected to Be Weak Next Week, with Anticipation of a Second Round of Price Cuts

In terms of supply, coal mines continue to make concessions to improve coke producers' profits, with most coke producers maintaining stable production. However, shipments face certain obstacles, leading to a slight accumulation of coke inventories at coke producers and increased sales pressure. On the demand side, despite steel mills' moderate profits, most currently have medium-to-high coke inventories, resulting in low enthusiasm for coke purchases and a gradual increase in their desire to drive down coke prices. Regarding the fundamentals of raw materials, coal mine production is operating normally, but actual coking coal inventory levels are high, creating sales pressure. Downstream buyers are adopting a wait-and-see attitude, with a high rate of failed online auctions. The enthusiasm for procurement among coke and steel enterprises is weak, and there is a lack of willingness to restock. Consequently, coking coal prices will continue to face downward pressure. In summary, the supply-demand imbalance in the coke market continues to accumulate, and cost support is weakening. As a result, coke prices may continue to face downward pressure, with expectations for a second round of price reductions.

Rebar: Demand constrained by high temperatures in the north and rainfall in the south; potential demand release before Dragon Boat Festival

This week, rebar prices fluctuated upward. The nationwide average price is currently 3,164 yuan/mt, down 44 yuan/mt WoW. On the supply side, steel mills' profit margins have recently been compressed, with some steel mills in the north-west China region planning to halt production, suggesting a potential decline in output in the future. Electric furnace mills that underwent maintenance earlier have resumed production, and the operating rate continued to rise this week. However, the challenge of scrap collection persists, and steel mills are experiencing significant losses in producing mainstream specifications, leading them to continue operating mainly during off-peak electricity periods in the short term. Overall, it is difficult for the operating rate to break through upwards. On the demand side, influenced by recent high temperatures in the north and rainfall in the south, downstream construction progress has been slow, and the procurement pace has slowed down, resulting in generally lackluster demand. As June approaches, marking the busy wheat harvest season in the north, some projects may rush to meet deadlines. Additionally, ahead of the Dragon Boat Festival next week, there may be a phased increase in demand. It is understood that most agents are operating with low inventory levels, with goods shipped directly from the factory for resource pickup. The floor price has shown strong resistance to decline, and steel mills have a clear intention to hold prices, providing some support for spot prices. Looking ahead, there are currently no significant positive macroeconomic signals. During the stage of tight supply-demand balance, market sentiment remains relatively cautious. It is expected that spot prices will fluctuate rangebound next week, but there is a possibility of prices stopping their decline and rebounding due to phased stockpiling by end-users ahead of the holiday. It is anticipated that the RB2510 contract will trade within the 3,000-3,180 range next week.

HRC: Production narrows slightly; macroeconomic conditions remain weak; HRC prices expected to stabilize and weaken next week

This week, the futures market fluctuated rangebound and stabilized with a weakening trend. Spot market prices fell by 10-30 yuan/mt compared to last Friday, with overall market transactions being moderate during the week, mostly concentrated in the latter half. In terms of supply, this week saw additional maintenance at some steel mills in north and east China, leading to a further decline in HRC production, which is already at a low level compared to the same period in previous years. On the demand side, downstream end-use demand remains resilient, with trade shipments being moderate. Social inventory in large samples continues to decline, with the rate of decline expanding. By region, the reduction in east and north China markets is greater than that in south and central China, as well as the north-east China region. Meanwhile, some steel mills have accelerated their shipping pace, and in-plant inventory has also declined slightly WoW. Currently, the total SMM HRC inventory stands at 4.187 million mt, down 222,300 mt WoW. In terms of costs, pig iron has entered a cycle of peaking and pulling back, but it remains in a state of high-level fluctuation in the short term, and cost support has not yet loosened. Looking ahead from the supply and demand fundamentals, the impact from maintenance has slightly decreased, but the recovery pace remains slow, resulting in relatively small short-term supply pressure. Meanwhile, as the production pace of the manufacturing sector gradually slows down, there is an expectation of a gradual weakening in demand. In the short term, it is difficult to see significant upward drivers in the macro news. However, considering the certain restocking demand before the holiday, it is expected that HRC inventory will continue to decline, with a narrower decline range. Next week, HRC prices may be in the doldrums, with a price range of 3,150-3,230.

Steel Scrap: Market Sentiment Cautious, Steel Scrap Prices May Be in the Doldrums Next Week

On the supply side, the futures market fluctuated this week, with market sentiment remaining cautious. Merchants slightly accelerated their sales pace. On the demand side, two EAF steel mills resumed production as scheduled this week, leading to an increase in the operating rate of EAF steel mills. According to the SMM survey, the operating rate of 50 major electric furnace steel mills producing construction materials nationwide was 38.46%, up 1.3% from the previous period WoW, indicating an increase in steel scrap demand. Looking ahead, as temperatures rise, steel scrap recycling and processing activities may be restricted. Additionally, under the pressure of losses, the production uncertainty of EAF steel mills increases, and the procurement volume of steel scrap may correspondingly decrease. Blast furnace steel mills, considering costs, will also remain cautious in purchasing steel scrap. Therefore, it is expected that next week, both supply and demand for steel scrap will be weak, and prices may be in the doldrums.

1. For the data involved in this report, please visit the SMM database (https://data-pro.smm.cn/)

2. For more content on SMM steel information, analysis reports, databases, etc., please consult Li Ping from the SMM Steel Department at 021-51595782

*The views in this report are based on information collected from the market and the comprehensive assessment of the SMM research team. The information provided in the report is for reference only, and risks are borne by the user. This report does not constitute direct advice for investment research decisions. Clients should make cautious decisions and not rely solely on this report for independent judgment. Any decisions made by clients are unrelated to SMM. Additionally, SMM is not responsible for any losses or liabilities arising from unauthorized or illegal use of the views in this report.

SMM reserves the right to modify and finally interpret the terms of this statement.