[SMM Steel Morning Meeting Summary] Cost support remains stable and improving, and the HRC market may hold up well next week

Domestic ore:

In the Tangshan region, the prices of domestic ore have remained relatively stable. The delivery-to-factory prices for 66% grade dry-based ore, inclusive of tax, range from 870 to 880 yuan/mt. Due to factors such as the difficulty in sourcing low-cost raw materials, the high risk of losses, and resistance in sales, the operation rate of beneficiation plants has remained low. Consequently, the local capacity utilization rate has been on the lower side, leading to a significant reduction in the supply of iron ore concentrates and strengthening the market's bottom support. Currently, steel mills' overall profits are moderate. Following the fourth round of coke price reductions, steel mill profits have risen slightly. After the recent concentrated decline in domestic iron ore concentrate prices, their overall cost-effectiveness has improved slightly, leading to a slight increase in steel mills' purchase enthusiasm. Considering the recent strengthening of the iron ore futures market, it is expected to drive up the local iron ore concentrate prices.

Imported ore:

Last week, the Dalian iron ore futures continued to rebound, with the most-traded contract I2509 closing at 716.5, representing a daily increase of 1.99%. Traders actively sold their stocks. As the weekend approached, steel mills' purchase willingness weakened, but better morning sales of finished steel products drove some demand growth. The market trading atmosphere was average. In the Shandong region, the mainstream transaction prices for PB fines were around 706-710 yuan/mt, showing a slight increase of 10 yuan/mt compared to previous prices. In the Tangshan region, the transaction prices for PB fines were around 720-725 yuan/mt, showing an increase of 10-15 yuan/mt compared to previous prices. Last week, the expansion of steel mill profits drove a rebound in pig iron production, and the demand for iron ore was robust, providing rigid support for ore prices. However, due to nationwide rainfall, the demand for finished steel products may weaken. It is expected that the accumulation rate of finished steel inventory will accelerate this week, which will exert pressure on ore prices. Overall, it is expected that iron ore prices will show a trend of strengthening first and then weakening this week, with the overall price center moving slightly upward.

Coking coal:

The quoted price for low-sulphur coking coal in Linfen is 1,180 yuan/mt. The quoted price for low-sulphur coking coal in Tangshan is also 1,180 yuan/mt. Regarding the fundamentals of raw materials, the safety inspection situation remains strict. Due to a coal mine accident in the Changzhi region of Shanxi, there has been a slight reduction in coking coal production, leading to a decrease in coking coal supply. Online auctions have generally shown a positive trend, with smooth sales and price rebounds for some coal types. In the short term, the coking coal market may operate temporarily in a stable manner.

Coke:

The nationwide average price for first-grade metallurgical coke (dry quenching) is 1,440 yuan/mt. The nationwide average price for quasi-first-grade metallurgical coke (dry quenching) is 1,300 yuan/mt. The nationwide average price for first-grade metallurgical coke (wet quenching) is 1,120 yuan/mt. The nationwide average price for quasi-first-grade metallurgical coke (wet quenching) is 1,030 yuan/mt. In terms of supply, some coking enterprises are experiencing losses and have reduced production, leading to a slight tightening in coke supply. Additionally, the market sentiment has stabilized recently, and the sales situation of coking enterprises has improved. In terms of demand, steel mills' profitability has continued to improve, and the demand for coke has gradually picked up. Improved market expectations have driven a slight increase in steel mills' enthusiasm for replenishing stocks, and the control of arrival volumes has decreased. In summary, the fundamental contradictions in the coke market have decreased, and cost support has emerged. The coke market may stabilize temporarily in the short term.

Rebar:

Last week, rebar prices fluctuated rangebound in a weak trend, with the nationwide average price at 3,061 yuan/mt, down 28 yuan/mt MoM. On the supply side, a few manufacturers were operating at a break-even point or with slight losses. They had already arranged production cuts or switched to producing other types of steel products. However, most blast furnace steel mills continued to maintain their production profit margins, and their output of construction materials remained unchanged. Currently, some blast furnace mills are purchasing the same types of steel scrap as 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. Even producing small-sized rebars results in losses. 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 conditions in the southwest and south China regions significantly impacted shipments last week, while demand in east and north China could still be maintained. Overall trading performance was basically similar to that before. As high-temperature weather approaches in the later period, the time for outdoor operations by terminal users will be adjusted to avoid peak hours, and it is difficult for demand to improve during the traditional off-season. In terms of inventory, in-plant inventory began to accumulate, but agents basically shipped goods directly from the mills to reduce their own inventory pressure. The trend of in-plant inventory and social inventory may continue to diverge in the short term. Overall, domestic macro policies are in a vacuum period, and seasonal demand is declining rapidly. Fundamental contradictions will accumulate, and the logic of construction materials will be relatively weak. 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 this week, and the RB2510 futures contract will fluctuate rangebound in the 2,900-3,050 range.

HRC:

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