"Anti-rat race" competition gains momentum. Can sentiment support the ferrous metals series to break through previous resistance? [SMM Weekly Report on Steel Industry Chain]

Forecast for Next Week: "Anti-Rat Race" Momentum Gathers, Can Sentiment Support Ferrous Metals Series Breaking Through Previous Pressure?

This week, the ferrous metals series first stabilized and then surged strongly, approaching the gap position from early April. At the beginning of the week, overall price fluctuations were relatively small. In the latter half of the week, there were continuous "anti-rat race" essays about raw materials and finished products, starting with "Shanxi steel mills receiving notices of crude steel production restrictions, with a province-wide production cut target of 6 million tons," followed by the China Railway Group responding to the "anti-rat race" call by canceling the policy of reducing railway freight rates for some railway bureaus, further pushing up coal and coke prices. Clearly, the cost logic was more favored by capital, with raw materials leading the gains in ferrous metals. In the spot market, amid high temperatures and heavy rainfall, end-use demand was mainly based on purchasing as needed. However, the narrowing of the spot-futures price spread attracted long-short arbitrage and speculative demand to enter the market. In the short term, according to SMM survey tracking, under the pressure of environmental protection-driven production restrictions, short-term pig iron production may continue to fluctuate and bottom out, but some coking plants plan to increase prices next week, and cost support may still be relatively strong. For steel, due to the moderate spot trading volume, the inventory of finished products decreased this week, and the elasticity of spot prices increased. Overall, in the short term, under the combined expectations of "anti-rat race" and strong raw material support, market pessimism has improved somewhat. At the same time, the fundamental contradictions are not prominent, and the participation in futures and spot markets has increased. Ferrous metals series prices may continue to hold up well next week, with attention paid to the pressure position of the upper gap.

Iron Ore: Tightening Supply and Demand Fundamentals Support Strong Price Increases

This week, iron ore prices showed a strong upward trend, with the price center significantly shifting upwards. From a fundamental perspective, supply pressure has eased somewhat. Supported by good profitability of steel mills, the decline in pig iron production has been limited, and overall demand has remained resilient. The total inventory of the five major steel products has shown an inverse seasonal inventory buildup, disproving the previously feared negative feedback logic and further strengthening market bullish expectations. On the macro side, market expectations for the "anti-rat race" policy and increased infrastructure investment have heated up, boosting the overall sentiment of the ferrous metals series. In terms of port conditions, the weekly average price of PB fines at Shandong ports increased by 15-20 yuan/mt MoM. Looking ahead to next week, it is expected that seasonal maintenance at overseas mines will end, and shipments will slightly rebound, but the increase will be limited. Port inventory may maintain narrow fluctuations. On the demand side, the impact of blast furnace maintenance will be limited. Supported by moderate steel mill profits, production enthusiasm will be maintained, and pig iron production is expected to slightly increase, with iron ore demand remaining resilient. On the macro level, as the July Political Bureau meeting approaches, market expectations for policy may continue to boost sentiment. However, after the rapid price increase of iron ore this week, market fear of high prices has emerged, with some long positions choosing to take profits, increasing the risk of short-term technical corrections. Overall, it is expected that iron ore prices may show sideways movement next week.

Coke: Good Fundamentals, Strengthened Cost Support, Expected Price Increase Next Week

This week, the coke market performed well overall. The nationwide average price of first-grade metallurgical coke (dry quenching) was 1,440 yuan/mt, the nationwide average price of quasi-first-grade metallurgical coke (dry quenching) was 1,300 yuan/mt, the nationwide average price of first-grade metallurgical coke (wet quenching) was 1,120 yuan/mt, and the nationwide average price of quasi-first-grade metallurgical coke (wet quenching) was 1,030 yuan/mt. On the supply side, recent cost increases have led to expanded losses for coking plants, but they are still within an acceptable range. Production levels have remained stable, with smooth shipments from coking plants. Some coking plants' coke inventory has already dropped to low levels. On the demand side, the market demand for finished products has shown resilience. Combined with good profitability of steel mills, pig iron production has remained high, and the willingness to purchase coke has increased. Overall, the fundamentals of coke have performed well, and with coking coal prices stabilizing and increasing, cost support has strengthened. The short-term coke market may operate steadily and strengthen, with an expected price increase next week.

Rebar: Strong Sentiment Pushes Up Spot Prices, but Weak Industry Fundamentals Limit the Upside

This week, rebar prices showed a fluctuating upward trend, with the current nationwide average price at 3,166 yuan/mt, up 47.5 yuan/mt MoM. On the supply side, according to SMM data survey, the daily average production of rebar at blast furnace steel mills in July decreased slightly by 2.2% MoM, with the decline mainly concentrated in the southwest and east China regions. Southwest steel mills face high inventory pressure, while some steel mills in the east China region have good order-taking and profitability for variety materials, with plans to cut production of construction materials in July. Other single-product construction material manufacturers have profits and short-term production enthusiasm remains unreduced. Although the benefits of electric furnace steel mills have improved, most are still in the loss-making stage. Coupled with a slight increase in electricity prices in some areas of east China during the summer, it is expected that the short-term operating rate of electric furnaces will continue to remain at a medium-low level, with no significant increase expected. On the demand side, high temperatures and rainy weather are prevalent in July-August, somewhat limiting the construction progress of site projects. During the seasonal off-season for demand, overall trading volume is unlikely to show significant improvement. Overall, in the short term, price trends will continue to be mainly driven by strong sentiment, but weak industry fundamentals during the off-season will drag down the upside of spot prices. After the sentiment fades, returning to industry fundamentals logic, under the pattern of weak supply and demand, it is expected that spot prices may show a fluctuating downward trend.

HRC: Currently Dominated by Capital Sentiment, Beware of the Risk of HRC Prices Jumping Initially and Then Pulling Back Next Week

This week, HRC prices first stabilized weakly and then surged strongly, with the market trading atmosphere improving and weekly trading volume increasing. On the supply side, the impact of hot-rolled maintenance decreased this week, and HRC supply slightly increased. On the demand side, the impact of the off-season was relatively small, with strong demand resilience for sheets and plates. The weekly apparent demand for HRC showed an inverse seasonal increase. In terms of inventory, according to SMM statistics, the nationwide social inventory of HRC slightly decreased this week. By region, except for a slight inventory buildup in central China, inventories in east China, north China, south China, and northeast China all decreased. On the cost side, coke prices stabilized this week, while iron ore prices surged rapidly, enhancing cost support for HRC. On the news front, Shanxi steel mills received notices of crude steel production restrictions, with a province-wide production cut target of 6 million tons, stimulating downstream purchase enthusiasm. Looking ahead, the fundamental contradictions of HRC have eased, with the market performing stronger than usual during the off-season. Coupled with the expected price increase of coke and temporary stabilization of iron ore, cost support will strengthen. Next week, the most-traded HRC futures contract may operate within the 3,180-3,340 range. It is necessary to be vigilant about the current dominance of capital sentiment, as slight changes may easily trigger steel price corrections.

Steel Scrap: Weak Supply and Demand Pattern, Insufficient Market Upward Momentum

On the supply side, affected by high temperatures and rainy weather, steel scrap output is tight, and the supply side has contracted somewhat. On the demand side, blast furnace steel mills have moderate profits and weak willingness to cut production. However, influenced by factors such as the cost-effectiveness of steel scrap, steel mills' enthusiasm for using steel scrap is not high. Although the benefits of electric furnace steel mills have rebounded, they have not yet escaped the loss-making zone. The motivation for production resumptions is limited. According to SMM surveys, as of July 8th, the operating rate of 50 electric furnace steel mills nationwide mainly producing construction materials was 33.02%, up 1.16% from the previous period. Overall, currently, the trading performance of finished products is average, and the enthusiasm for terminal purchases is flat. The market holds a wait-and-see attitude towards the future, with insufficient upward momentum for steel scrap. Subsequent attention should be paid to macroeconomic policies and changes in steel inventory.

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