The fundamental contradictions are not yet acute, and the ferrous metals series may fluctuate at highs in the short term [SMM Weekly Report on Steel Industry Chain]

Forecast for next week: Fundamental contradictions not yet acute; ferrous metals series may fluctuate at highs in the short term

This week, the ferrous metals series surged strongly, effectively breaking through previous support levels. At the beginning of the week, disruptions in the raw material sector intensified, with the impact of environmental protection-driven production restrictions on coking coal weakening first, leading to a decline in raw material prices, followed by production restrictions on sinter in Tangshan. Although the actual impact was limited, it had a significant stimulating effect on market sentiment, causing the ferrous metals series to rebound slightly. Mid-week, the Central Financial and Economic Affairs Commission meeting issued signals on addressing cut-throat competition, raising expectations for supply-side reforms. The ferrous metals series rose broadly, becoming the main logic for the trend in the latter half of the week. In the spot market, with strong futures, end-users continued to purchase as needed. However, the spot-futures price spread narrowed, with increased demand for closing out short positions and entering long positions.

In the short term, according to SMM survey tracking, under the influence of production control policies, pig iron production fell by 4,200 mt this week, but it will remain at a high level in the short term, and cost support will not collapse easily in the short term. For steel, manufacturing demand remains resilient, but the seasonal decline in overall demand caused by high temperatures is still evident. Spot prices also lack the strength to follow the rise, with a significant contraction in the spot-futures price spread and continued accumulation of supply-demand contradictions. Overall, contradictions in finished steel products are accumulating but not yet acute, and there is still short-term support from the raw material side. Therefore, it is expected that steel prices will continue to hold up well in the short term. However, the production cut policy on the supply side is not clear, and caution should be exercised against a pullback in prices due to fading market sentiment next week. But overall, even if there is a pullback, the space will be relatively limited given the minor contradictions.

Iron ore: Fundamentals remain robust; sentiment improves, supporting a significant price rally

This week, imported iron ore prices surged significantly, with the price center moving higher. However, the relatively weak spot market trend led to an expansion in the spread between futures and spot prices. In terms of port spot prices, the weekly average price of PB fines at Shandong ports rose by 10-15 yuan/mt MoM. It is expected that iron ore prices will continue to hold up well and fluctuate in the short term. The current market sentiment is optimistic, and combined with fundamental support, there is still enthusiasm for long positions. However, caution should be exercised against potential market disruptions as the deadline for tariff negotiations approaches, as well as the risk of further tightening of environmental protection-driven production restrictions in the north.

Coke: Short-term market may stabilize temporarily, with expectations for a rebound

In terms of supply, most coking enterprises are experiencing minor losses, but this has had little impact on production. Coke supply remains relatively stable, and at the same time, coking enterprises' shipment situation is moderate, with their own coke inventory continuing to decline. In terms of demand, pig iron production at steel mills remains at a high level, creating rigid demand for coke. Some steel mills with low inventory levels are still restocking. Regarding the fundamentals of raw materials, coal mines are maintaining a normal production pace overall, with coking coal supply recovering. At the same time, downstream purchasing enthusiasm has increased, and trade links have also started purchasing. Online bidding situations continue to improve. In the Tangshan area, backbone coal varieties have rebounded slightly by 10-20 yuan/mt. In addition, it is still necessary to consider the suppression of coking coal prices by the losses of coking enterprises. In summary, the fundamental contradictions in the coke market are not obvious, with cost support remaining stable. The short-term coke market may stabilize temporarily, but due to the continuous and significant rally in the futures market, a rebound may occur subsequently.

Rebar: Price rallies rapidly driven by news, but stability of bottom prices is poor

This week, rebar prices fluctuated upward. The nationwide average price is 3,118.6 yuan/mt, up 57.4 yuan/mt MoM. On the supply side, the profit levels of blast furnace steel mills continue to remain stable, with many steel enterprises maintaining their production of construction steel. However, considering the signals released by the Central Financial and Economic Commission meeting this week regarding the governance of cut-throat competition, steel mills in Yunnan and Guizhou have begun to respond with production cut plans, but the implementation situation in the later stage remains to be seen. This week, individual short-process manufacturers resumed production as planned, with the overall operating rate increasing slightly. However, the overall loss situation of steel mills remains difficult to change, and it is expected that the operating rate will continue to be at a medium-low level in the short term. On the demand side, influenced by the market rally, the trading atmosphere in the market improved this week. However, currently in the off-season for seasonal demand, the later trading performance will trend downward. In terms of inventory, although the transfer of in-plant inventory to social inventory has accelerated, the total inventory continues to decline, and the accumulation of contradictions is not prominent. It is understood that recently, driven by macro news, the spot price rally has been rapid, but merchants generally report difficulties in selling high-priced resources, and the price stability is poor. It is feared that the news will return to reality in the later stage, and it will be difficult to support the bottom prices. In summary, driven by profits, the actual reduction in production by blast furnace steel mills is limited. The expectations for demand in the off-season are poor, and fundamental issues still exist. It is necessary to be cautious about the risk of HRC futures prices jumping initially and then pulling back next week. The RB2510 contract will fluctuate rangebound in the 2,980-3,130 range.

HRC: Futures market fluctuates upward, boosting spot trading volume, but be cautious about HRC prices jumping initially and then pulling back next week

Today, HRC futures fluctuated rangebound, with the most-traded contract closing at 3,201, up 0.25% daily. In the spot market, spot prices were mainly in the doldrums, with the market trading atmosphere weakening. The overall daily trading volume fell compared to yesterday, and terminal purchase willingness was low. On the news front, US President Trump stated plans to impose tariffs ranging from 60% to 70% and from 10% to 20% on different countries, with countries beginning to pay these tariffs from August 1. From the perspective of HRC fundamentals, the impact from maintenance on HRC production continued to decline this week, with production increasing slightly by 2,900 mt MoM. Weekly production reached 3.3685 million mt, and the supply pressure of HRC gradually became prominent. On the demand side, orders for automobiles and home appliances have gradually weakened, and the operating rate has declined. Considering the recent weakness in cold-rolled sheet orders and trading, the demand for structural steel has weakened, and the impact of the off-season has become more prominent. This week, the futures market saw a significant rally, which to some extent boosted market trading willingness. However, most of this was driven by speculative demand, with no significant improvement in actual demand. Downstream buyers still focused on purchasing as needed. On the cost side, iron ore provided strong support, while coke remained in the doldrums. Furnace charge support was moderate in the short term. Overall, HRC inventory continued to accumulate this week, with the accumulation range gradually expanding. The pattern of strong supply and weak demand has not changed for the time being. Looking ahead, steel mills in North China may have additional maintenance, and supply pressure is expected to see a slight correction. Currently, the market has strong expectations for the July Central Political Bureau meeting. It is necessary to be vigilant about the risk of futures market pullback after sentiment digestion. It is expected that the fluctuation range of the most-traded HRC futures contract next week will be between 3,150 and 3,270.

Steel scrap: The market maintains a pattern of weak supply and demand, with prices likely to continue fluctuating rangebound.

On the supply side, due to high temperatures and rainy weather, the amount of industrial waste generated has gradually decreased, and the efficiency of steel scrap recycling and processing has declined. However, as the current social inventory of steel scrap remains at a medium level, an overall tight supply situation has not yet formed. On the demand side, downstream demand is weak, and the market trading atmosphere is cautious. Affected by the low cost-effectiveness of steel scrap and production cuts due to losses at electric furnace mills, steel mills have low enthusiasm for using steel scrap and insufficient absorption capacity for it. Overall, the current fundamentals of steel scrap still maintain a pattern of weak supply and demand. It is expected that prices will likely undergo narrow adjustments next week, and it is necessary to closely monitor the de-stocking situation of finished steel products in the future.

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