Before the expectations fall through, the ferrous metals series may continue to hold up well [SMM Weekly Report on Steel Industry Chain]

Forecast for next week: Before expectations are dashed, the ferrous metals series may continue to hold up well amid volatile conditions

This week, the trend of the ferrous metals series was consistent with that of the previous few weeks. On Wednesday night session, a strong upward trend began, with finished steel breaking through previous resistance levels and continuing to fill the gap from early April. At the beginning of the week, prices experienced a correction; in the latter half of the week, market rumors emerged about production restrictions ranging from 30-50% in the coking sector in the Wuhai region, Indonesia's intention to impose export tariffs, and the second round of coke price increases planned for next week. Coking coal and coke continued to lead the gains in the ferrous metals series. Meanwhile, amid the off-season, continuous inventory reductions in finished steel provided support for the market. On the macro front, the State Council held a meeting to study the implementation of key policy measures to strengthen the domestic circulation, and a consultation seminar on expanding domestic demand in an all-round way was convened. In the spot market, end-use demand was primarily driven by purchasing as needed. Even amid the strong upward trend in futures, there were still calendar spread and speculative demand entries. In the short term, according to SMM survey tracking, hot metal production increased this week and is expected to remain stable at a high level subsequently. Meanwhile, there are still plans for coke price increases, and cost support remains relatively robust. For steel, inventory reductions in finished steel continue, and the spot market exhibits stronger-than-usual off-season characteristics. Overall, the contradictions in the finished steel market are not yet apparent, providing some support to the futures market. In the short term, market sentiment remains the primary driver. Although raw materials face window guidance and capital withdrawals, with the "anti-rat race" competition details and expectations for the Political Bureau meeting at the end of July not yet dashed, ferrous metals series prices are still expected to continue holding up well next week.

Iron ore: Favorable macro expectations, prices may continue to hold up well next week

This week, imported iron ore prices surged significantly, driven by both strengthened policy expectations and fundamental support. The fundamental landscape remains unchanged, with steel mills' rigid restocking demand continuing to support ore prices. On the macro perspective, with the Political Bureau meeting approaching, market expectations for policy intensification continue to ferment, and bullish sentiment still dominates. It is worth noting that current ore prices have broken through key resistance levels, and some longs in the futures market may choose to take profits, which will constrain the upside room for ore prices. Based on a comprehensive assessment, it is expected that iron ore prices will continue to hold up well next week, but the upward momentum may weaken marginally, and caution is needed regarding the risk of a correction after policy expectations are realized.

Coke: Cost support further strengthened, with expectations for price increases next week

 In terms of supply, the first round of coke price increases has been implemented, but coking coal price increases occurred earlier and were more significant. Most coking enterprises are still operating at a slight loss, with supply slightly reduced. Additionally, coking enterprises have been shipping smoothly recently, and coke inventory is running at a low level. In terms of demand, steel mill profits are good, and procurement is active. Coupled with traders diverting cargo sources, some steel mills have experienced restricted arrivals and have begun to urge for deliveries. On the raw material front, recent coal mine shipments ran smoothly, with strong purchasing enthusiasm from downstream users and active trading activity, leading to continued reduction in coal mine inventory pressure. Additionally, online auction transactions performed well, with most coal types sold at premiums and few failed auctions, while some coal varieties saw price increases exceeding 100 yuan. Overall, the coke market fundamentals remained solid, with further strengthened cost support. After the first round of price hikes, some coking plants still held bullish expectations, suggesting the coke market may continue to hold up well in the short term.

Rebar: Spot prices rose on news-driven sentiment, while industry fundamentals lacked clear drivers

Rebar prices fluctuated upward this week, with the nationwide average price at 3,200.6 yuan/mt, up 38.9 yuan/mt WoW. Supply side, some blast furnace steel mills maintained production profits, while mills in southwest China arranged production cuts due to high inventory pressure and cost issues. East China mills prioritized production of specialty products, leading to lower rebar output. EAF steel mills saw improved profitability recently, with some slightly extending operating hours. However, overall operating hour increases were limited as full-capacity production during off-peak periods incurred heavy losses. Further significant increases in EAF operating rates are unlikely. Demand side, inland regions saw more high-temperature days, affecting construction schedules and progress. Coastal regions experienced delayed demand release due to heavy rainfall, with overall transactions pulling back, reflecting typical off-season weakness. In summary, news-driven raw material price hikes fueled bullish market sentiment. Rebar fundamentals showed no significant deterioration, lacking inherent industry drivers for a clear trend, leaving short-term prices mainly following raw material fluctuations. While strong sentiment persists, spot prices may continue rising next week. The RB2510 contract is expected to fluctuate rangebound between 3,080-3,200.

HRC: "Anti-rat race" supply contraction expectations and strong cost support to drive prices higher next week

HRC prices held up well this week, with spot prices gaining 40-60 yuan/mt WoW. While futures rallied rapidly, spot prices and end-user demand remained at moderate levels, with overall stable transactions. This week’s SMM HRC balance data showed narrow output declines, continued inventory drawdowns, and rebounding apparent demand. According to SMM’s national survey of 86 warehouses (large sample), HRC social inventories stood at 3.0346 million mt, down 38,200 mt WoW (-1.24% WoW, -31.96% YoY). By region, inventories declined in east, south, and central China, while slight buildups occurred in north-east and north China. Cost side, tight iron ore supply and sustained high blast furnace hot metal output supported ore prices, while coke also retained upside potential, keeping overall cost support firm. Looking ahead, some steel mills in northern China may arrange maintenance in the mid-to-late period, and it is expected that there will still be room for HRC production to pull back nationwide in the next two weeks. Downstream manufacturing orders have not seen significant improvement, but market sentiment has been relatively bullish recently, remaining in the doldrums with moderate demand resilience. Additionally, under the expectation of supply contraction on the "anti-rat race" competition side, there is a strong sentiment for long positions in commodities. From the perspective of HRC fundamentals, the lack of inventory buildup during the off-season and the continued destocking trend of raw materials also support the HRC futures market. Therefore, it is comprehensively expected that the most-traded HRC contract will continue to hold up well next week, with a trading range of 3220-3380.

Steel Scrap: Tight Supply Meets Cautious Demand, Prices May Fluctuate Rangebound Next Week

On the supply side, due to the high-temperature weather in many regions, steel scrap output has seasonally decreased, resulting in a tight market supply of circulating goods. On the demand side, although EAF steel mill profits have rebounded, overall shipment conditions have been average, and steel mills have been relatively cautious in purchasing steel scrap. According to the SMM survey, as of July 15th, the operating rate of 50 electric furnace steel mills producing building materials nationwide was 33.8%, up 0.78% MoM from the previous period. Overall, the current enthusiasm for terminal procurement is average, and the performance of rebar inventory turnover has been mediocre. This week, the total inventory of rebar has shifted from a decrease to an increase, and the market has adopted a wait-and-see attitude towards the future. Therefore, it is expected that the steel scrap market will continue to fluctuate rangebound next week, and it is necessary to closely monitor the destocking rhythm of finished steel and changes in steel mill profits in the future.

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