The time window is narrowing, and there is a risk of market decline due to capital taking profits and exiting the market [SMM Weekly Report on Steel Industry Chain]

Forecast for next week: Narrowing time window, risk of market decline due to profit-taking and exit of funds

This week, the ferrous metals series continued the upward trend from the night session of last Friday, all reaching highs in recent months. On the news front, at the beginning of the week, it was reported that "the General Office of the National Energy Administration issued a notice on organizing and conducting inspections of coal mine production to promote stable and orderly coal supply." On Friday, a 4.2-magnitude earthquake occurred in Linfen, Shanxi, causing repeated fluctuations in market sentiment in the coking coal market, with multiple daily limit-ups during the week, driving the ferrous metals series higher. Iron ore prices performed slightly worse than other varieties. On the fundamental side, the second and third rounds of coke price increases were implemented this week, and the fourth and fifth rounds were also being considered. Meanwhile, inventory performance in the finished steel sector was moderate. In the spot market, the recent market trading atmosphere has been good, but it has mainly been driven by calendar spread speculation demand, with end-use demand still primarily purchasing as needed.

In the short term, according to SMM survey tracking, hot metal production has been hovering at high levels recently, while coke still has plans for further price increases. Cost support remains relatively strong. For steel, the spot market has shown characteristics of a stronger-than-usual off-season, but under high supply, end-user purchasing has been poor, leading to inventory buildup in some varieties. Overall, under the traditional off-season, the expected logic still outweighs the actual logic, and the actual situation does not currently drag down the market. Therefore, with the "anti-rat race" competition details and the expectations for the Political Bureau meeting at the end of July not yet dashed, ferrous metals series prices are expected to continue to hold up well. However, as the time window narrows, caution is advised against profit-taking and exit of funds leading to a market decline.

Iron ore: Imported iron ore prices fall back from highs, expected to fluctuate sideways next week

At the beginning of the week, the news of the official commencement of the hydropower project downstream of the Yarlung Zangbo River sparked optimistic expectations for steel demand, driving up iron ore prices. However, as market sentiment gradually cooled, investors' concerns about the high prices of iron ore also increased. Overall, the supportive role of macro factors in the iron ore market still exists, but market sentiment has become cautious. It is expected that next week, iron ore prices may maintain a sideways movement pattern. Both hot metal production and inventory levels support spot prices. The upward pressure mainly comes from the expectation gap of macro policies and fear of high prices, while the downward support stems from strong spot demand and a low inventory structure. It is necessary to closely monitor the content of the Political Bureau meeting. If it releases unexpectedly positive news, it may break through the current sideways movement range; otherwise, it may continue to consolidate.

Coke: Tight fundamentals, short-term market may continue to hold up well

This week, on the basis of the second round of coke price increases being implemented, mainstream steel mills in Hebei and Shandong accepted a third round of coke price increases of 50-55 yuan/mt. In terms of supply, coking coal enterprises are facing high costs for coal fed into blast furnaces, with some coking coal enterprises still operating at a loss and production constraints in place. However, coking coal enterprises are experiencing smooth product shipments, with vehicles queuing up for loading. On the demand side, the operating rate of blast furnaces at steel mills remains high, providing significant support for rigid demand. Regarding the fundamentals of raw materials, coal enterprises are maintaining stable production, but the National Energy Administration will conduct inspections on coal mines with excessive production recently, indicating an expected tightening of supply. Some coking coal enterprises with low inventory levels of raw materials are still actively restocking, driving up coal prices at production sites. Additionally, online auction prices for some coal types continue to rise, with some transaction prices increasing by over 300 yuan. Furthermore, the second round of coke price increases has been implemented, coupled with a 4.2-magnitude earthquake in Linfen, Shanxi Province on Friday, which has once again sparked market sentiment in the coking coal market. In summary, the fundamentals of coke have shifted towards a tighter situation, with some coking coal enterprises showing strong reluctance to sell. Coupled with strong cost support, the coke market may continue to hold up well in the short term.

Rebar: Fundamentals do not stand out, strong sentiment supports spot price increases

This week, rebar prices fluctuated upward, with the nationwide average price reaching 3,344.8 yuan/mt, up 144.2 yuan/mt MoM. On the supply side, profits at blast furnace steel mills continue to be maintained, with most manufacturers maintaining production at previous levels and no significant changes in production. EAF steel mills have seen improved profitability, with some new steel mills resuming production this period and the operating rate increasing slightly. Among them, some coastal steel mills have a profit of a few tens of yuan when producing during off-peak hours, but production during peak and shoulder hours is still at a loss, with limited room for upward adjustment in production duration. On the demand side, prices have risen sharply this week, leading to an increase in speculative purchasing demand. However, actual downstream demand remains average, with purchases mainly made as needed. It is difficult for end-use demand to show significant improvement during the off-season. Overall, the total inventory of building materials has decreased slightly, with no significant contradictions in the fundamentals. However, the driving force within the off-season stage is weak, and prices mostly fluctuate with raw material prices. In the later stage, there is an expectation for a fourth round of coking coal price increases, with strong cost support. Building material prices are more likely to rise than fall. In the short term, it is necessary to closely monitor the situation of the Central Political Bureau meeting and be vigilant against the potential price pullback pressure brought about by a decline in market sentiment.

HRC: Fundamental contradictions persist, be cautious of the risk of prices jumping initially and then pulling back next week

This week, HRC prices have risen sharply, with an improved market trading atmosphere and an increase in the number of inquiries. In terms of supply, the impact of maintenance on hot-rolled production has decreased this week, leading to a slight increase in HRC supply. On the demand side, the off-season effect is still in play, with weekly apparent demand for HRC decreasing in line with the seasonal trend. In terms of inventory, according to SMM statistics, the nationwide social inventory of HRC at 86 warehouses reached 3.1369 million mt this week, up 102,300 mt MoM, or 3.37% MoM. The nationwide social inventory has begun to accumulate. By region, except for slight destocking in north-east China and central China, east China, south China, and north China are all experiencing inventory buildup. On the cost side, the second round of coke price increases (50-55 yuan/mt) took effect this week, with the average price of iron ore rising by 30 yuan/mt, strengthening the cost support for HRC. In terms of news, the National Energy Administration will recently conduct inspections on coal mines that have exceeded production quotas. Coking coal futures led the gains in the ferrous metals series. Additionally, the construction of the Yajiang Dam is expected to drive the total demand for special steel to 4-6 million mt, strongly boosting the demand for finished steel products. Furthermore, a 4.2-magnitude earthquake occurred in Linfen, Shanxi, on Friday, reigniting market sentiment in the coking coal market. Looking ahead, there is potential for a fourth round of coke price increases and iron ore prices are expected to fluctuate rangebound, strengthening cost support. However, the fundamental contradictions in the HRC market still exist, suppressing the upward trend of HRC prices. Next week, the most-traded HRC futures contract may trade within the 3400-3550 range. Caution is advised as current market sentiment, driven by capital flows, is prone to price corrections with slight disturbances.

Steel Scrap: "Anti-Rat Race" News Boosts Steel Market, Supply Decline and Demand Increase May Support Price Upside

Supply side: Hot and rainy weather has affected construction site operations and steel scrap recycling, leading to a decrease in steel scrap output from construction sites and a tightening of market supply. Demand side: Recently, steel prices have been influenced by "anti-rat race" news, with market sentiment strengthening. Steel mills have a good order backlog, and the demand for steel scrap remains strong. The profitability of EAF steel mills has improved, increasing their willingness to boost production and slightly increasing the demand for steel scrap. According to the SMM survey, as of July 22, the operating rate of 50 electric furnace steel mills nationwide, which mainly produce construction materials, was 35.74%, up 1.94% MoM from the previous period. Overall, the steel scrap market is currently experiencing a supply decline and demand increase, and it is expected that steel scrap prices will continue to be supported next week. Attention should be paid to the situation of the Political Bureau meeting at month-end.

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