Supported by raw materials, the ferrous metals series may hold up well in the short term [SMM Steel Industry Chain Weekly Report]

Forecast for Next Week: Supported by Raw Materials, Ferrous Metals Series May Hold Up Well in the Short Term

This week, the ferrous metals series initially rose before stabilizing in the doldrums, with HRC performing worse than other varieties due to fundamental pressures. The key turning point this week was the US Fed's interest rate cut. In the first half of the week, before the rate cut was finalized, macro expectations persisted, coupled with rumors of production halts at Xinjiang thermal coal mines, leading to a generally strong performance in the ferrous metals series. In the second half of the week, the US Fed cut interest rates by 25 basis points, with no surprises, prompting some capital to exit. From the fundamental perspective of finished products, rebar showed a short-term inventory inflection point, while HRC inventory continued to accumulate, suppressing HRC's performance under fundamental pressures. In the spot market, amid rapidly fluctuating conditions, end-user procurement remained cautious.

In the short term, according to SMM survey tracking, hot metal production rose by 5,400 mt WoW and is expected to remain at relatively high levels. Additionally, raw materials face pre-holiday restocking demand, providing effective cost support in the short term. For steel products, some downstream sectors may engage in pre-holiday restocking next week, though this may not commence until the latter half of the week. The first half is likely to see mostly demand-based restocking, and HRC's inventory inflection point may fall short of expectations. Overall, market rumors today suggested communication between China and the US; positive outcomes could boost short-term market sentiment. Combined with ongoing restocking demand for raw materials, the ferrous metals series may hold up well next week, though sheets & plates fundamentals could act as a drag.

Iron Ore: Pre-Holiday Stockpiling Supports Prices to Hold Up Well

This week, imported iron ore prices generally continued to hold up well, with the price center slightly upward. At ports, the weekly average price of PB fines at Shandong ports rose by 3 yuan/mt WoW. Looking ahead to next week, hot metal production is expected to continue rebounding. However, due to environmental protection-driven production restrictions in Tangshan, the actual increase in hot metal may be relatively limited, potentially below current market expectations. Notably, next week will be the last full trading week before the holiday, and some steel mills still have restocking needs. Concentrated procurement is expected to provide strong support for ore prices. Overall, iron ore prices are anticipated to continue fluctuating rangebound with a firm bias.

Coke: Pre-Holiday Restocking Expectations May Stabilize the Market

Supply side, two rounds of coke price cuts have been implemented, and coking coal prices rebounded, significantly squeezing coke producers' profit margins. However, production remains normal, coke supply is relatively stable, and with smooth shipments, there is no significant inventory pressure. Demand side, high hot metal production supports coke demand, and steel mills still have restocking needs for coke. In summary, futures market sentiment pulled back, but coke cost support strengthened. Coupled with pre-holiday restocking expectations downstream, the coke market may stabilize in the short term. Fundamentals of raw materials, some accident-affected mines remain suspended, production has not returned to normal levels, supply decreased slightly, downstream users restocked some essential coal types appropriately, transactions for certain coal types at mines improved, and coking coal prices may hold up well in the short term. In summary, futures market sentiment pulled back, but coke cost support strengthened, coupled with restocking expectations downstream before the National Day holiday, the coke market may remain stable in the short term.

Steel scrap: Tug-of-war between sellers and buyers continues, follow-up focus on pre-holiday restocking at steel mills

Supply side, the tight supply of steel scrap resources is hard to change recently, merchants hold strong reluctance to sell and maintain a cautious attitude towards sales pace. Demand side, overall profitability of EAF steel mills is currently poor, under cost pressure some electric furnace mills have adjusted by reducing operating hours to control production pace. According to an SMM survey, as of September 16, the operating rate of 50 EAF steel mills mainly producing construction materials was 38.5%, down 1.22% WoW. Overall, rebar futures continued a fluctuating trend this week, market sentiment remained cautious, finished product transactions were generally weak, which still somewhat suppressed steel scrap price increases. Therefore, steel scrap prices are expected to fluctuate rangebound in the short term. Follow-up requires close attention to pre-holiday restocking demand at steel mills. If restocking willingness improves and procurement intensity increases before the holiday, it may provide phased support to steel scrap prices; otherwise, if restocking demand falls short of expectations, prices will mainly move sideways.

Rebar: High inventory pressure persists, limited upside for spot prices

This week, rebar prices rose first then fell, with the current nationwide average price at 3,140 yuan/mt, up 19 yuan/mt WoW. Supply side, most blast furnace steel mills currently have production profits of 50-80 yuan/mt, but some mills with poor profitability have added new rolling line maintenance or switched to producing other steel varieties, leading to a slight production decrease; in some regions, steel scrap purchase prices rose rapidly, production costs at EAF mills continued to increase, some manufacturers halted production or reduced operating hours this week, overall operating rate continued to decline, difficulties in scrap collection will persist in the short term, profits are unlikely to improve significantly, and production will remain at medium to low levels. Demand side, influenced by coking coal news early in the week, overall trading atmosphere was better from Monday to Wednesday, with accumulated demand released; however, some regions were affected by rainy weather, limiting short-term demand release, and attention is needed on pre-holiday restocking demand realization next week. Looking ahead, macro news is frequently positive, but market inventory levels remain high, merchants operate cautiously, resulting in spot prices lagging behind futures gains; approaching the National Day holiday, downstream restocking demand exists, demand performance may see phased increases, spot price upward momentum is relatively strong, and construction steel spot prices are expected to fluctuate upward next week.

HRC: Pre-Holiday Stocking Demand Is Expected to Release, Prices Likely to Rise Slightly Next Week

This week, the HRC market retreated after a rapid rise, with overall trading volume down WoW. Supply side, steel mills' HRC maintenance increased, leading to a slight decline in HRC production. Demand side, market demand did not reach peak season levels, and weekly HRC apparent demand continued to weaken slightly. Inventory side, SMM's statistics for the national 86 warehouses (large sample) showed HRC social inventory at 3.7104 million mt, up 69,700 mt WoW, up 1.91% WoW. This week, the national social inventory buildup was significant; by region, except for slight decreases in northeast and east China, all other regions experienced inventory buildup. Cost side, the second round of coke price cuts took effect, while iron ore prices rose slightly, resulting in rangebound fluctuations in HRC cost support. News side, the US Fed cut interest rates by 25 basis points, in line with market expectations. Looking ahead, coke prices are stabilizing, iron ore prices are rising slightly, cost support is strengthening slightly, and pre-holiday stocking demand is expected to release, suggesting HRC prices are likely to rise slightly next week. The most-traded HRC contract is expected to trade in the range of 3,310-3,450.

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