Raw Material Support Slightly Insufficient, Ferrous Metals Series May Fluctuate Rangebound Next Week [SMM Steel Industry Chain Weekly Report]

Forecast for Next Week: Insufficient Raw Material Support, Ferrous Metals Series May Fluctuate Rangebound

This week, the ferrous metals series exhibited a "V"-shaped trend. On Monday, futures remained rangebound at high levels due to rumors about a coal mine accident last Friday and Shanghai's property market easing policies. However, some coal mine rumors were debunked, with limited impact on actual production, while finished steel fundamentals remained weak, leading to a mid-week pullback in futures. Approaching the weekend, market rumors suggested China would push for steel production cuts in 2025 and 2026, prompting bearish funds to temporarily retreat, though upward pressure on the ferrous metals series remained evident. On the spot market, amid the transition between peak and off seasons, end-use demand release still seems distant.

Short-term, according to the SMM survey, hot metal production fell 400 mt WoW. However, with the parade approaching, the decline in hot metal output will become more pronounced next week, keeping cost support weak in the near term. For steel, the current environmental protection-driven production restrictions mainly impact section steel producers, with limited effects on rebar and sheets & plates output. With steel mill profits elevated, production of the five major steel products will remain high, while demand in the north has been significantly affected by environmental policies, leading to widespread work stoppages. The demand decline will outpace the supply reduction, and inventory accumulation will continue. Overall, weak cost support and sluggish finished steel demand remain the dominant logic, and the ferrous metals series may continue to fluctuate rangebound in the short term.

Iron Ore: Hot Metal Decline to Be Followed by Rapid Rebound, Driving Price Recovery

This week, iron ore prices fluctuated rangebound, with the average price slightly higher than the previous week. At ports, the weekly average price of PB fines at Shandong ports rose 6 yuan/mt WoW.

Looking ahead, demand-wise, due to the parade, some blast furnaces in Tangshan may undergo short-term shutdowns, further reducing hot metal output. However, as the production restrictions are brief and steel mill profits remain moderate, mills are expected to quickly resume production after September 4, driving a rebound in hot metal output and concentrated iron ore demand. Additionally, expectations for US Fed interest rate cuts are gradually intensifying post-September, providing macro support for ore prices. Overall, iron ore prices are expected to hold up well next week.

Coke: Both Supply and Demand Weaken, Market Likely to Stabilize Short-Term

Supply side, with the parade approaching, coke producers in Hebei, Shandong, and Henan have gradually implemented production restrictions, constraining regional supply. However, profit recovery has boosted production enthusiasm among coke producers in other regions, resulting in only a slight overall supply reduction. Demand side, blast furnace restrictions in Tangshan have begun, temporarily reducing steel mills' coke demand. Yet, some mills with low coke inventories remain active in purchases. Raw material fundamentals: Recent intensified coal mine safety inspections have limited coking coal production increases. However, downstream procurement pace slowed down, weakening market trading sentiment. Coal mines reported poor order signing, with increased failed online auctions and transaction prices starting to decline at varying degrees. In the short term, coking coal prices may move sideways. Overall, both supply and demand for coke weakened, and the coke market is expected to remain stable in the near term.

Rebar: Divergent market sentiment keeps spot prices rangebound

This week, rebar prices fluctuated rangebound, with the nationwide average price at 3,196 yuan/mt, down 10.2 yuan/mt WoW. Supply side: Although blast furnace steel mills faced compressed production margins, most remained profitable and maintained previous output levels. Some mills resumed production after maintenance, leading to a slight WoW production increase. EAF steel mills saw breakeven margins for extreme sizes but continued losses for intermediate sizes, with operating hours mostly limited to off-peak electricity periods. Overall production changed little, though some mills may halt production next week, potentially lowering operating rates. Demand side: Weather conditions improved slightly in both northern and southern regions, triggering phased demand releases in some regional real estate markets and slight procurement increases. Additionally, more infrastructure projects were awarded recently, with some engineering demand expected to start by year-end, though the short-term demand boost remains limited. Looking ahead, steel mills will prioritize profit-driven production with low voluntary output cut intentions. However, market sentiment diverges on the "September-October peak season" demand recovery, with some traders reporting an "underperforming peak season" as the main theme. Short-term trading will likely focus on quick turnover. Construction steel spot prices are expected to fluctuate rangebound next week, with no clear industry trend emerging yet.

HRC: Military parade approaches, prices expected to move sideways with limited upside room

This week, HRC prices moved sideways amid generally muted trading activity, with weak weekly transactions and price fluctuations of 10-20 yuan/mt. Market news included the rollout of a five-ministry steel growth stabilization plan and rumors of production restrictions for the military parade, which briefly strengthened steel prices. However, as these developments largely matched prior expectations, the market maintained its weak volatility. Fundamentally, this week's HRC maintenance impact reached 183,000 mt, up 30,000 mt WoW, while next week's estimated impact stands at 91,000 mt, down 92,000 mt from this week. HRC supply continues rising short-term, maintaining pressure. Demand side: Manufacturing sectors like automotive and home appliances saw slight order improvements, but the seasonal transition remains unclear. With month-end approaching, traders stayed cautious, requiring further confirmation for any sustained rebound, leading to prevailing wait-and-see attitudes. The current inventory performance aligns with previous forecasts, with social inventory continuing to accumulate at a slightly accelerated pace. By region, east China, south China, and north China saw larger increments. Traders' purchasing pace slowed down, while in-plant inventory experienced minor fluctuations. The total inventory under SMM's large-sample survey stood at 462.64, up 159,200 mt WoW. Cost side, with the military parade approaching, blast furnace production restrictions have gradually commenced, leading to a slight weakening in cost support, though overall resilience remains moderate. In summary, short-term supply landscape appears relatively loose, with demand showing minor improvements. The most-traded HRC contract is expected to move sideways between 3,300-3,450 next week.

Steel scrap: Supply-demand pattern shows little change, prices may fluctuate rangebound next week

Supply side, affected by high temperatures and rainy weather, steel scrap output declined, reducing arrivals at steel mills and sustaining tight supply. Demand side, current end-use steel demand remains moderate, with limited room for significant increases in steel mill operating rates. Coupled with declining profitability at EAF steel mills, some electric furnace plants have reduced operating hours, leading to a slight drop in steel scrap demand. According to an SMM survey, as of August 26, the operating rate at 50 EAF steel mills producing construction materials nationwide was 39.84%, down 0.06% WoW. Overall, this week's steel scrap market saw little change in its supply-demand pattern. In the short term, until end-use demand shows clear improvement, steel mills are likely to maintain a cautious stance on scrap purchases. Prices may fluctuate rangebound next week, with subsequent focus on finished product price trends and macro news.

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