Raw material support holds up well, and the ferrous metals series may hold up well in the short term [SMM Weekly Report on Steel Industry Chain]

Forecast for next week: Raw material support remains strong; ferrous metals series may hold up well in the short term

This week, the ferrous metals series first declined and then rebounded, with raw materials outperformforming finished products. The Israel-Iran conflict has been ongoing. Last weekend, the Iranian Parliament passed a resolution to blockade the Strait of Hormuz, pending approval from the Supreme National Security Council. On June 24th, Israel and Iran announced a ceasefire, but there were still clashes between the two sides after the ceasefire, and the conflict has not yet completely subsided. In the first half of the week, inflation expectations weakened, and sentiment in the ferrous metals series cooled. As the weekend approached, raw materials led the gains, mainly due to stricter safety inspections in coal mines and the closure of the Mongolian Naadam Festival for 5 days, which enhanced expectations of tighter coking coal supply. Coupled with the stabilization and increase in pig iron production, raw material support strengthened. In the spot market, with the arrival of the off-season, end-users still focused on purchasing as needed. The spot-futures price spread narrowed, and some spot-futures traders purchased for delivery.

In the short term, according to SMM survey tracking, pig iron production is expected to continue rebounding in the short term. There are expectations of reduced supply both domestically and internationally in coal mines. The repair of supply and demand still requires time, and cost support is relatively solid in the short term. For steel, seasonal characteristics of demand are beginning to emerge, but a sharp decline is unlikely, and overall demand remains resilient. The supply-demand imbalance is accumulating slowly. Overall, the supply-demand imbalance is accumulating slowly, but raw material support remains relatively solid in the short term. Therefore, it is expected that steel prices will continue to hold up well in the short term, with attention paid to the release of PMI data next week.

Iron ore: Strong fundamentals support; prices are expected to continue rising next week

Looking ahead to next week, overseas shipments are expected to continue increasing, particularly from Australia and Brazil, which may maintain stable or slightly increase shipment volumes. The overall pressure on the supply side is relatively moderate, but as end-use demand enters the traditional off-season, market purchasing momentum gradually weakens. On the demand side, blast furnace pig iron production is expected to continue rebounding slightly, providing some support for ore prices. However, considering the off-season demand and the lack of macroeconomic policy stimulus, the upward momentum for ore prices is insufficient. It is expected that iron ore prices will maintain a fluctuating rangebound trend in the short term.

Coke: Cost support emerges; short-term coke market may stabilize temporarily

In terms of supply, some coking enterprises are experiencing losses and have reduced production, leading to a slight tightening of coke supply. Additionally, market sentiment has stabilized recently, and the sales situation of coking enterprises has improved. On the demand side, steel mills' profitability continues to improve, and demand for coke is gradually recovering. Improved market expectations have driven a slight increase in steel mills' enthusiasm for replenishing inventory, and the control of arrival volumes has decreased. Regarding raw material fundamentals, safety inspection situations remain strict. Due to a coal mine accident in the Changzhi area of Shanxi Province, there has been a slight reduction in production, and coking coal supply has decreased. Online auctions have generally shown a positive trend, with smooth sales and price rebounds for some coal types. The short-term coking coal market may stabilize temporarily. In summary, the fundamental contradictions in the coke market have decreased, and cost support has emerged. The short-term coke market may stabilize temporarily.

Rebar: In-plant inventory rises while social inventory falls; supply-demand imbalance emerges initially

This week, rebar prices have been in the doldrums. The current nationwide average price is 3,061 yuan/mt, down 28 yuan/mt MoM. On the supply side, a few manufacturers are operating at break-even or slightly in the red. They have already arranged production cuts or switched to producing other varieties of steel in the early stage. However, most blast furnace steel mills continue to maintain production profit margins, and their output of construction materials remains unchanged. Currently, some blast furnace mills purchase steel scrap models that overlap with those of electric furnace mills, leading to persistent difficulties in scrap collection. Except for Sichuan, where there are electricity price subsidies, electric furnace mills in other regions continue to incur losses. Producing small-sized rebars still results in losses, and there is a possibility of a further decline in the operating rate of electric furnace mills in the short term. On the demand side, severe weather in the southwest and south China regions has severely impacted shipments this week, while demand in east and north China can still be maintained. Overall trading performance is basically similar to that of last week. In the later stage, with the arrival of high-temperature weather, terminal outdoor working hours will be adjusted in a staggered manner, and it is difficult for demand to improve during the traditional off-season. In terms of inventory, in-plant inventory has begun to accumulate, but agents have basically reduced their own inventory pressure by shipping directly from the mills. The short-term trends of in-plant inventory and social inventory may continue to diverge. Overall, domestic macro policies are in a vacuum period, and the seasonal decline in demand is relatively rapid. Fundamental contradictions will accumulate, and the logic of construction materials will be in the doldrums. However, at this stage, the futures market performance of raw materials is strong, and it is difficult for construction materials to develop an independent trend in the short term. It is expected that the spot price of construction steel will fluctuate rangebound next week, and the RB2510 contract will fluctuate rangebound in the 2,900-3,050 range.

HRC: Cost support is stable and improving; the HRC market may hold up well next week

This week, HRC prices first declined and then rebounded, with a significant increase on Friday. The market trading atmosphere was average, and weekly trading volume decreased. In terms of supply, the impact of maintenance on hot-rolled production decreased this week, and HRC supply increased. In terms of demand, the impact of the off-season in the market is obvious. Coupled with a new round of high-temperature and rainfall warnings, the apparent demand for finished steel products has declined. In terms of inventory, SMM statistics show that this week's social inventory of HRC was 3.0017 million mt, up 22,200 mt MoM, or 0.75%. Social inventory nationwide has begun to accumulate. By region, except for east China, where inventory continues to decline, inventory in central, south, north, and northeast China regions has all accumulated. In terms of costs, the fourth round of coke price reductions was implemented this week, and iron ore prices rose slightly, resulting in a slight weakening of cost support. Looking ahead, the fundamental contradictions in the HRC market are still in the accumulation stage, with a relatively small negative impact on the market. Coupled with the stabilization of coke prices and the increase in iron ore prices, cost support is stable and improving. Next week, the most-traded HRC contract may hold up well in the 3,070-3,170 range.

Steel Scrap: The pattern of weak supply and demand continues, with steel scrap prices more likely to rise than fall.

On the supply side, affected by high temperatures and rainy weather, the operating rate of steel scrap processing bases has declined, and recycling efficiency has decreased, resulting in a reduction of market circulation resources. Additionally, the market is cautious about the future outlook, with most operations focusing on quick in-and-out transactions and a weak willingness to stockpile, leading to overall low social inventory levels. On the demand side, blast furnace steel mills have reduced their enthusiasm for using steel scrap due to lower fuel prices and reduced pig iron costs. EAF steel mills, facing high costs and increasing losses, have seen more production shutdowns and maintenance. Overall, the current pattern of weak supply and demand in the steel scrap market persists, with tight steel scrap resources and traders reluctant to sell at low prices. It is expected that steel scrap prices will be more likely to rise than fall next week, and subsequent attention should be paid to changes in steel mill production conditions.

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