The Actual Effect of "Anti-Rat Race" May Be Limited, and Prices Are Expected to Rise First and Then Fall Next Week [SMM Steel Industry Chain Weekly Report]

Forecast for Next Week: Limited Practical Effect of "Anti-Rat Race" Policy, Prices May Rise First Then Fall

This week, the ferrous metals series showed a wave-like trend, with iron ore holding up well. This week marked the most concentrated period of environmental protection-driven production restrictions for the 93rd military parade, leading to a pullback in hot metal production which weakened the rigid demand for coke. The weakened raw material support, coupled with strengthened transportation controls in some northern regions, temporarily halted demand, resulting in an overall weak performance for the ferrous metals series, with prices of multiple varieties dropping to near one-and-a-half-month lows. In the latter half of the week, maintenance in the north ended and production gradually resumed, causing prices to rebound from lows, but weak finished product data limited the upside room. In the spot market, end-use procurement demand in the north remained restricted this week, leading to rapid inventory accumulation, while some markets in south China saw a release of end-use demand. In the short term, according to the SMM survey, hot metal production fell by 63,200 mt WoW due to the military parade activities, but is expected to rebound significantly next week. Iron ore will continue to hold up well, but coke cost support has weakened, and with rising steel mill inventories, there is a risk of price cuts. Cost support is unlikely to recover in the short term. For steel products, environmental protection-driven production restrictions in the north have ended, with both supply and demand warming up. Although steel mill profits have narrowed, they have not yet reached levels that would trigger production halts. However, downstream demand has yet to reach peak season levels, and inventory accumulation will continue. Overall, weak demand will limit the performance of the ferrous metals series in the near term, with finished products likely to underperform raw materials. Today, rumors of "anti-rat race" policies resurfaced in the market, but overall, the practical effect appears limited. Prices may rise first then fall next week.

Iron Ore: Both Fundamentals and Macro Factors Provide Support, Prices to Hold Up Well Next Week

This week, imported iron ore prices fell first then rose, with futures prices rising more than spot prices. In terms of port prices, the weekly average price of PB fines at Shandong ports rose by 2 yuan/mt WoW. Looking ahead to next week, iron ore fundamentals show a pattern of strong supply and demand. Considering the high probability of a US Fed interest rate cut next week, market sentiment leans optimistic, and with the hype around anti-rat race policy news heating up, multiple factors are expected to drive iron ore prices to continue their fluctuating trend. The most-traded contract I2601 may challenge previous highs.

Coke: Fundamentals Gradually Loosen, Price Cut Risk Increases Next Week

Key Points: Supply side, coke producers' profit levels remain moderate, and with the relaxation of environmental protection-driven production restriction policies after the military parade, previously restricted coke producers are gradually resuming production, leading to an expected increase in coke supply. Demand side, market sentiment has turned cautious, and with logistics gradually recovering post-parade, steel mills' arrival conditions have significantly improved, weakening their enthusiasm for coke procurement. On the raw material front, some coal mines gradually resumed production, leading to an increase in output. Market sentiment continued to weaken, with downward expectations emerging for coke. Downstream users slowed raw material procurement, while traders actively offloaded inventories. The coking coal trading atmosphere weakened, with lackluster online auction results and more failed auctions. Even successful transactions were concluded at lower prices, indicating deteriorating market sentiment. In summary, the coke market is gradually shifting toward oversupply. In the short term, coke prices may remain in the doldrums, with increasing downside risks.

Steel scrap: Weak demand may keep prices rangebound in the short term

Supply side, poor market sentiment has prompted steel scrap processors to adopt a "low inventory, fast turnover" strategy, which may limit the growth of scrap supply to some extent, keeping supply-side expansion relatively constrained. Demand side, falling spot prices have eroded EAF mill margins, prompting cautious sentiment among EAF steel mills. Overall production pace saw little change, with most mills maintaining a low-price procurement strategy for scrap. In summary, weak downstream demand and poor steel mill profitability continue to constrain scrap demand. Until end-use demand shows clear improvement, scrap prices are expected to fluctuate rangebound in the short term.

Rebar: Accumulating supply-demand imbalance keeps spot prices under pressure

Rebar prices remained in the doldrums this week, with the nationwide average price at 3,131.3 yuan/mt, down 64.7 yuan/mt WoW. Cost side, rising raw material prices and falling spot prices have significantly compressed profits for both BF and EAF steel mills, with some mills reporting marginal losses, dampening production enthusiasm. Supply side, production restrictions in Henan (30-50% sintering machine cuts) and blast furnace output reductions or idling ahead of the military parade, coupled with maintenance at some mills in north China, led to a slight decline in building materials output this week. Post-parade, previously idled mills gradually resumed operations, suggesting a short-term production increase. Demand side, while coastal regions saw slow demand recovery, cautious procurement sentiment prevailed amid falling prices. Rainfall in north, southwest, and central China further weakened overall transactions. Inventory side, both social and mill inventories accelerated their buildup, though producers reported manageable pressure. Post-parade project resumptions in north China and gradual demand recovery in south China during the seasonal transition may alleviate near-term inventory concerns. Looking ahead, the absence of macro tailwinds and lack of clear price trends, combined with cost support on the supply side, make it difficult for traders to cut prices further. Downside room for spot prices appears limited, but demand recovery could still drive a rebound. Spot prices of construction steel are expected to fluctuate rangebound next week.

HRC: Demand gradually increases, prices likely to strengthen

HRC prices bottomed out after pulling back this week, with overall transactions declining WoW. Supply side, steel mills reduced HRC maintenance, leading to a slight increase in production. Demand side, the market is transitioning between peak and off seasons, with weekly apparent consumption of HRC increasing slightly over time. Inventory side, SMM's survey of 86 warehouses nationwide (large sample) showed HRC social inventory at 3.6701 million mt, up 104,200 mt (2.92%) WoW. National social inventory continued to build up, though the pace slowed. By region, destocking occurred in south and north-east China, while inventory buildup persisted in east, north, and central China, with the largest increase in north China. Cost side, coke prices stabilized this week while ore prices strengthened slightly, providing overall firmer cost support for HRC. Looking ahead, coke prices are expected to see the first round of cuts, while ore prices may rise, keeping overall cost support steady. Coupled with gradually increasing demand, HRC prices are likely to strengthen, with the most-traded contract expected to trade between 3,250-3,400 next week.

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