[SMM Steel Morning Meeting Summary] Ferrous metals series volatility narrows, focus on changes in exports

Ferrous Metals Experience Narrower Fluctuations, with Focus on Export Changes

Last week, ferrous metals fluctuated rangebound, with iron ore continuing to outperform other ferrous metals, while coke showed a weaker trend. 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 was affected by high temperatures and rainy weather, leading to weakened demand. In the short term, according to SMM survey tracking, some blast furnaces have new annual maintenance plans, with pig iron production showing a downward trend, though absolute values 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 steel market fundamentals 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

Last week, the imported iron ore market experienced a fluctuating trend, with the price center gradually moving downward. Early in the week, market expectations for improved demand rose 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 and 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, the iron ore market is expected to face weak supply and demand fundamentals. 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 to face pressure and exhibit a narrow and weak fluctuating trend.

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

In terms of supply, coal mines continue to make concessions to improve coking plant profits, with most coking plants maintaining stable production. However, shipments face certain obstacles, leading to a slight accumulation of coke inventory at coking plants and increased sales pressure. On the demand side, despite moderate steel mill profits, most steel mills currently have medium-to-high coke inventory levels, resulting in low enthusiasm for coke procurement and a gradual increase in the desire to bargain 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 coking 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. Subsequently, 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

Last week, rebar prices fluctuated in the doldrums. The current nationwide average price is 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. Some 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 the wheat harvest season approaches in the north in June, some projects may rush to meet deadlines. Additionally, with the upcoming 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 extraction. The floor price has strong resistance to decline, and steel mills have a clear willingness to refuse to budge on 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, and the RB2510 contract is expected to trade within the 3,000-3,180 range.

HRC: Production narrows slightly amid macroeconomic downturn; HRC prices stabilize but trend weaker

Last week, the futures market fluctuated rangebound and stabilized but trended weaker. 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 second half of the week. In terms of supply, influenced by maintenance at some steel mills in north and east China last week, HRC production declined again and is at a low level compared to the same period in previous years. On the demand side, downstream end-use demand remains resilient, and trade shipments are 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, and the northeast region. Meanwhile, the shipping pace of some steel mills has accelerated slightly, and in-plant inventory has also declined slightly WoW. Currently, the total SMM HRC inventory is 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 the doldrums in the short term, and cost support has not yet loosened. Looking ahead from the perspective of supply and demand fundamentals, the impact from maintenance has slightly decreased, but the recovery pace is slow, resulting in relatively small short-term supply pressure. Meanwhile, as the production pace of the manufacturing industry gradually slows down, there is an expectation of a gradual weakening in demand. In the short term, it is difficult to see significant upward driving forces from macroeconomic news. However, considering the certain restocking demand before the holiday, it is expected that HRC inventory will continue to decline, with a narrower decline margin. 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

Supply side, this week, the futures market fluctuated, and market sentiment was relatively cautious. Merchants slightly accelerated their selling pace. Demand side, two EAF steel mills resumed production as scheduled this week, and the operating rate of EAF steel mills increased. According to the SMM survey, the operating rate of 50 EAF steel mills nationwide, mainly producing construction materials, was 38.46%, up 1.3% from the previous period WoW, and the demand for steel scrap has increased. Looking ahead, as temperatures rise, steel scrap recycling and processing activities may be restricted. Meanwhile, 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 both supply and demand for steel scrap will be weak, and prices may be in the doldrums.