Expectations for off-season strengthen, steel prices may be in the doldrums next week [SMM Steel Industry Chain Weekly Report]

Forecast for next week: Off-season expectations strengthen; steel prices may remain in the doldrums next week

This week, the ferrous metals series opened lower and closed higher, with coking coal rising by over 12% and coke by over 7%. On the macro front, at the beginning of the week, the Caixin Manufacturing PMI recorded 48.3, falling below the critical point for the first time since October 2024. The futures market opened lower. Mid-week, there were continuous rumors about coking coal, including a tariff hike on Mongolian coal, followed by production cuts in the Sanxi region and the implementation of the Mineral Resources Law. These developments brought about a rebound in coking coal and coke, which had previously seen a smooth decline and were undervalued, while also driving up other ferrous metals products. However, the fundamentals of coking coal remain weak, with a bearish outlook in the medium and long term. In the spot market, the futures market hit bottom and rebounded this week, with intermittent improvements in market sentiment and the release of some procurement demand. In the short term, according to SMM survey tracking, pig iron production fell by 5,000 mt this week. Some steel mills still have new annual maintenance plans in place, and the third round of coke price cuts is imminent, suggesting a potential loosening of cost support. For steel, with the arrival of high temperatures and rainy weather in the north and south, downstream procurement demand for construction materials has slowed down. Although there is still short-term resilience in manufacturing demand, production continues to rebound, leading to renewed pressure. Overall, with strengthened off-season expectations and weakening cost support, steel prices may remain in the doldrums next week. It is recommended to go short on rebounds.

Iron Ore: Market sentiment improves; prices may see a slight rebound

Looking ahead to next week, overseas shipments are expected to rebound. However, due to the continuous heavy rainfall in South China, port operation efficiency will be significantly constrained, and actual port arrivals will remain at a low level. In terms of demand, affected by seasonal maintenance, the operating rate of blast furnaces at steel mills may continue to drop back slightly. However, considering that pig iron production will still remain at a relatively high level of over 2.4 million mt/day, the support from end-use demand for ore prices will remain strong. On the macro perspective, with the marginal easing of Sino-US tariff issues and the rising expectations for domestic steady growth policies, particularly potential support measures in infrastructure investment and consumption stimulus, market risk appetite is expected to improve further. Overall, driven by multiple factors such as short-term supply constraints, resilient demand, and an improved macro environment, iron ore prices are expected to fluctuate upward next week, with room for a slight rebound.

Coke: Bearish sentiment in the market has been somewhat released; the coke market may remain in the doldrums next week

In terms of supply, due to profit contraction and shipping disruptions, the production enthusiasm of some coking enterprises has declined, leading to a contraction in coke supply. In terms of demand, the recent downturn in the finished steel market has narrowed steel mill profits. Additionally, an increase in blast furnace shutdowns and maintenance at some steel mills has led to a continuous decline in pig iron production. Coupled with high inventory levels of coke at steel mills, there is a tendency to control arrivals. On the raw material fundamentals, coal mine production in some regions declined slightly, but market purchasing sentiment remained weak. Downstream coking enterprises primarily purchased as needed, and coal mines faced difficulties in shipping their products. Online auction transaction prices continued to fall, and inventories at some coal mines continued to accumulate. Next week, coking coal prices are more likely to fall than rise. In summary, the third round of price reductions has been implemented, and the market's bearish sentiment has been somewhat vented. Next week, the coke market may operate in the doldrums.

Rebar: Increased maintenance at steel mills allows for a temporary weak balance between supply and demand in the short term

This week, rebar prices first declined and then rebounded. The current nationwide average price is 3,097 yuan/mt, down 7 yuan/mt MoM. On the supply side, the third round of coke price reductions was implemented this week, and raw material costs continued to decline. The profit levels of many blast furnace steel mills remained around 100 yuan/mt. However, some steel mills arranged for normal maintenance and experienced sudden maintenance due to production restriction policies, leading to expectations of a continued decline in short-term production. Short-process manufacturers faced increasing losses, with some steel mills planning to halt operations, suggesting a further potential decline in the overall operating rate. On the demand side, at the beginning of the week, downstream purchasing enthusiasm was dampened by a significant market decline. From mid-week onwards, the futures market improved, and there was a demand for pre-stocking at some construction sites near examination venues, leading to a release of project demand. Over the weekend, the plum rain season began in many parts of east China, and high temperatures in the north affected downstream construction progress, making it difficult to reverse the weak demand trend during the off-season. In terms of inventory, steel mill production continued to decrease this week, and the rate of destocking at in-plant and social inventories slowed down. The market remained in a phase of weak supply-demand balance. Looking ahead, without significant positive stimuli from macro policies, the weak reality of the industry is unlikely to drive a strong market rebound. During the traditional off-season for demand, short-term price trends are expected to continue fluctuating rangebound. However, considering the increase in maintenance at steel mills, if the reduction in supply can outpace the decline in demand, spot prices still have upward momentum. It is expected that the RB2510 contract will operate within the 2,900-3,100 range next week.

HRC: Increased supply and weak demand; HRC prices are expected to remain under pressure next week

This week, HRC prices first declined and then rebounded, with a moderate trading atmosphere. After the futures market rallied, transaction sentiment improved somewhat. On the fundamental side, some steel mills were still affected by maintenance this week. However, due to an increase in production schedules at steel mills in north-east China and east China in June, the overall impact was a slight MoM increase in HRC production. On the demand side, downstream steel demand remained in a seasonal decline, with apparent demand continuing to pull back. Meanwhile, affected by the Dragon Boat Festival holiday and the previous price decline, traders' willingness to purchase decreased, and HRC in-plant inventories continued to accumulate. This week, in terms of social inventory by region, east China, central China, and north China markets continued destocking, while south China and north-east China markets continued inventory buildup. In the north-east region, the overall inventory buildup expanded significantly, mainly due to the impact of production resumptions at blast furnaces at some steel mills. Currently, the total inventory of SMM's large sample is 4.146 million mt, up 28,700 mt MoM. On the cost side, the short-term supply of iron ore is constrained, while demand remains resilient. Although coke prices rebounded due to various speculative news during the week, three rounds of price reduction proposals are imminent, and prices are expected to remain in the doldrums. Overall, the cost support for HRC has slightly weakened. In terms of production scheduling surveys, HRC production scheduling for June has increased significantly, with daily average production on the rise. Meanwhile, the production pace of downstream manufacturing industries has slowed down, and demand continues to weaken. Given the supply increase and demand decrease, it is expected that HRC prices will continue to face downward pressure, with the most-traded HRC contract expected to trade within the 3000-3150 range next week.

Steel Scrap: The market has entered the off-season, and steel scrap prices are expected to be in the doldrums next week.

Affected by poor finished steel sales, the profits of some EAF steel mills have been compressed, leading to shortened operating hours and shutdowns for maintenance. According to the SMM survey, the operating rate of 50 electric furnace steel mills nationwide, which mainly produce construction materials, was 38.42% this week, down 0.72% MoM from the previous period, with flat demand for steel scrap. Overall, the steel market has gradually entered the off-season, with wheat harvesting in the north and the college entrance examination affecting steel scrap recycling and processing. Meanwhile, some end-user construction activities have been impacted, leading to increasingly sluggish steel demand. Some steel mills have begun maintenance and production cuts, especially with a significant decline in the operating rate of EAF steel mills, weakening the demand for steel scrap. Therefore, it is expected that steel scrap prices will be in the doldrums next week.

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