Expected disturbances still exist, and the ferrous metals series may continue to fluctuate [SMM Weekly Report on Steel Industry Chain]

Forecast for next week: Anticipated disruptions persist; ferrous metals series may continue to fluctuate

This week, the ferrous metals series rebounded from lows but then saw some pullbacks. In the first half of the week, the driving force behind the market rally was mainly in the coking coal sector. As the verification of coal production capacity further advanced, the futures of coking coal surged, driving an overall rebound in the ferrous metals series. The market reached another peak amid rumors of production restrictions for the military parade and crude steel output reduction. In the second half of the week, these rumors cooled down, coupled with poor performance in supply and demand data for finished steel products, leading to a pullback in the futures market. In the spot market, transactions were moderate in the first half of the week, but mostly driven by speculative demand from arbitrageurs, while end-user demand remained generally weak.

In the short term, according to SMM survey tracking, hot metal production of steel mill blast furnaces decreased by 3,500 mt MoM this week. As the military parade approaches, environmental protection pressure in the North China region intensifies, and hot metal production may fall short of expectations, with a slight risk of weakening cost support. For steel products, with current high profits, steel mills are highly motivated to produce. According to the latest SMM production schedule data, the production of hot-rolled coil and rebar in August continues to increase, and environmental protection-driven production restrictions have not yet been reflected. However, end-user procurement has not yet shown improvement, and the five major steel products will continue to experience inventory buildup. Overall, in the short term, there are expectations for both raw materials and finished steel products. Production restrictions in coal mines strengthen raw material support, driving finished steel products higher, while production restrictions in finished steel products are negative for raw materials, weakening cost support. Before the dust settles, the market may continue to fluctuate amid rumors, and SMM maintenance data will continue to be monitored.

Iron ore: Disturbances from environmental protection-driven production restrictions in North China; prices expected to maintain a fluctuating trend next week

This week, imported iron ore prices first rose and then fell. In terms of fundamentals, both supply and demand were weak this week. From a macro perspective, the probability of a US Fed interest rate cut in September has increased, but rumors of production restrictions related to the September 3 military parade have put pressure on ore prices. Amid the interplay of bullish and bearish factors, iron ore prices maintained sideways movement. In terms of port prices, the weekly average price of PB fines at Shandong ports increased by 3 yuan/mt MoM. Looking ahead to next week, the iron ore market will exhibit a pattern of increasing supply and decreasing demand. Although fundamentals lean towards bearishness, there are still supporting factors at the macro level: rising expectations for a US Fed interest rate cut have boosted sentiment in the commodity market, and domestic macro policies maintain a mild tone, keeping the overall market sentiment relatively optimistic. Overall, iron ore prices will maintain a fluctuating and consolidating trend next week.

Coke: Cost support remains strong; the market holds certain expectations for a sixth round of price increases

In terms of news, mainstream coking enterprises have proposed a sixth round of price increases for coke, ranging from 50-55 yuan/mt. In terms of supply, coking enterprises' profitability has improved, and the supply of coke has increased. Currently, coking enterprises have good shipment conditions, and their coke inventories remain low. In terms of demand, the arrival of coke at steel mills has improved, and their coke inventories have slowly increased. However, the hot metal production of steel mill blast furnaces remains at a high level, creating rigid demand for coke and maintaining the previous procurement rhythm. Raw material fundamentals: Inspection of overproduction in coal mines in Shanxi continues unabated, with expectations of tighter coking coal supply. Additionally, the inventory pressure of coking coal is relatively small, and there is a strong willingness to refuse to budge on prices and raise them. However, downstream buyers are cautious in purchasing, leading to a cooling of the bullish sentiment for coking coal. Overall, coking coal prices remain stable, with quotes for some tight coal varieties rising slightly. In summary, the arrival of coking coal at steel mills has improved, and the supply-demand imbalance for coke has eased somewhat. However, cost support remains strong, and the short-term coke market may hold up well with a slight rise. The market holds certain expectations for a sixth round of coke price increases.

Rebar: Production enthusiasm of steel mills remains high, with slight signs of fundamental contradictions emerging

This week, rebar prices fluctuated rangebound, with the nationwide average price at 3,270.1 yuan/mt, down 12.2 yuan/mt MoM. On the supply side, according to SMM data and surveys, the planned production of rebar by blast furnace steel mills in August increased by 1.32%, while coiled rebar production decreased by 1.87%. The gross profit of plate and strip production at steel mills in the north-east China region exceeded 300 yuan/mt. In August, hot metal production prioritized full production of plate and strip rolling lines, leading to plans to halt production of wire rod and coiled rebar rolling lines. Three electric furnaces that had been halted resumed production this week, with the operating rate gradually rising to a high level for the year. Next week, there are still plans for steel mills to resume production, and the short-term operating rate will continue to rise. On the demand side, high temperatures and rainy weather in the first half of August affected the construction pace at project sites, with downstream buyers purchasing as needed. Overall trading performance was average. In summary, during the recent vacuum period of domestic macroeconomic news, market sentiment continued to fluctuate with news from the raw material side. This week, the total inventory of construction steel began to accumulate slightly, with fundamental contradictions in the construction steel market gradually emerging. Market sentiment is cautious and waiting, and it is expected that next week, spot prices of construction steel may be in the doldrums. Next week, continue to pay attention to the production restrictions and work stoppages in the Beijing-Tianjin-Hebei steel mill region before and after the military parade on September 3, as there is a possibility of price rebounds due to news disruptions.

HRC: Cost support is expected to continue strengthening, with potential for further HRC price increases next week

This week, the HRC market first rose and then fell, with prices rebounding first and then correcting. Overall trading volume changed little compared to last week. In terms of supply, the impact of maintenance on hot rolling increased this week, leading to a decrease in HRC supply. In terms of demand, the influence of the off-season expanded, 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 in 86 warehouses (large sample) was 3.2573 million mt this week, up 65,300 mt MoM, or 2.05% MoM, and down 31.71% YoY. This week, the nationwide social inventory continued to accumulate. By region, except for slight destocking in the north-east China and north China regions, inventory buildup occurred in the east China, central China, and south China regions. In terms of costs, the fifth round of coke price increases (50-55 yuan/mt) was implemented this week, and the average price of iron ore fluctuated rangebound, enhancing cost support for HRC. On the macro front, seven departments are promoting the industry to accelerate towards the mid-to-high end and preventing "rat race" competition. There are also rumors circulating in the market, such as strict production restrictions starting from August 15, with blast furnaces and sintering plants each reducing production by 30%; blast furnaces to be completely shut down for four days starting from September 1; steel mills in Anhui Province to limit production by 15%-20%; and coal mines in Shanxi, Shaanxi, Shandong, and north-east China to fully implement a 276-day production schedule. These rumors have heightened market expectations for a reduction in supply. Looking ahead, there are expectations for a sixth round of coke price increases and iron ore prices to fluctuate rangebound, which will strengthen cost support. However, the off-season is suppressing HRC demand, limiting the upside potential for HRC prices. Next week, the most-traded HRC contract is expected to trade within the 3350-3500 range. Subsequent attention should be paid to the situation of hot metal production restrictions at steel mills.

Steel Scrap: Supply and Demand Pattern Remains Relatively Stable, Market Prices Expected to Fluctuate Rangebound Next Week

Recently, influenced by the "anti-rat race" policy and fluctuations in raw material prices, some recycling enterprises have changed their expectations for the future market. On the supply side, affected by hot and rainy weather, steel scrap output has remained tight, and supply is relatively scarce. On the demand side, the arrival of steel scrap at steel enterprises has been mixed. This week, three additional electric furnace plants have resumed production, slightly increasing the demand for steel scrap. According to the SMM survey, the operating rate of EAF steel mills this week was 40.68%, up 2.86% MoM from the previous period. In summary, the recent supply and demand pattern for steel scrap has remained relatively stable. It is expected that the steel scrap market will continue to fluctuate rangebound next week. Subsequent attention should be paid to the destocking rhythm of finished steel and changes in steel mill profits.

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