Short-term upward support is insufficient, ferrous metals prices may remain in the doldrums [SMM Steel Industry Chain Weekly Report]

Forecast for Next Week: Insufficient Short-Term Upside Support; Ferrous Metals Series Prices May Be in the Doldrums

This week, the ferrous metals series fluctuated downward. On Monday, five departments issued the "Steel Industry Steady Growth Work Plan (2025-2026)", setting the average annual growth target for the steel industry's added value at around 4% for the next two years, which was positive for market sentiment. However, demand for finished products was not well released, making it difficult for futures to rise. In the latter part of the week, six departments announced a strict ban on new cement clinker and flat glass capacity projects, requiring the formulation of capacity replacement plans. Anti-involution expectations resurfaced, coupled with improved finished product inventory data WoW, leading to a withdrawal of bear funds and a slight rise in futures. However, by the weekend, both the US and the EU announced impending new tariffs on China, causing futures to fall again. In the spot market, suppressed by futures, pre-holiday procurement demand was not significant this week.

Short term, according to the SMM survey, hot metal production rose by 17,400 mt WoW and is expected to remain at relatively high levels, providing relatively effective cost support. For steel, terminal restocking demand will gradually proceed in the coming days, but the outlook remains unclear, and the release of terminal purchase demand may fall short of expectations. Overall, although the inventory of the five major steel products shows a destocking trend, weak real performance still cannot support a rise in futures. Upcoming overseas macro tariff pressures may further dampen market sentiment, and domestic macro conditions are unlikely to exceed expectations before the holiday. Therefore, it is expected that the ferrous metals series may continue a fluctuating trend in the doldrums next week.

Iron Ore: Weakening Fundamental Support; Increased Risk of Price Decline Next Week

This week, iron ore price support mainly came from demand, driven by both increased hot metal production and active stockpiling by steel mills. Looking ahead to next week, steel mills have largely completed pre-holiday stockpiling, and purchase willingness is expected to weaken. Iron ore demand will pull back significantly, reducing price support. Additionally, rising risk aversion before the holiday may further narrow price fluctuations. Overall, iron ore prices are expected to fluctuate rangebound in the doldrums next week.

Coke: Market Game; First-Round Price Hike Still Expected to Materialize

Supply side, recent increases in coking coal costs and narrowed profits have forced coke enterprises to initiate price hikes. However, without significant losses, production enthusiasm remains moderate, and supply is basically stable. With the National Day holiday approaching, coke shipments have improved. Demand side, steel mills are profitable, hot metal production remains high, and pre-holiday restocking demand for coke exists. But with continued inventory buildup in steel products, resistance to coke price hikes persists. Raw material fundamentals, most coal mines are operating normally, downstream procurement enthusiasm has increased, market transactions are active, mine shipments are smooth, and inventory continues to decline. However, due to poorer downstream profits, coking coal price increases are limited, and the coking coal market may operate generally stable with a slight rise in the near term. In summary, pre-holiday restocking space is limited, and the coke market is expected to remain in a deadlock in the short term, with the first round of coke price hikes anticipated to materialize.

Steel Scrap: Dual Factors of Supply and Demand Intertwined, Prices Expected to Continue Sideways Movement Next Week

Supply side, affected by typhoon weather, port operations in South China were forced to suspend, regional logistics and transportation systems came to a standstill, steel scrap recycling processes were hindered, upstream resources were difficult to gather effectively, and already collected scrap could not be transported out normally. In the short term, steel scrap supply tightened somewhat. Demand side, overall profitability of EAF steel mills is currently poor, with some electric furnace plants affected by both sluggish market conditions and high cost pressures, leading to production halts and maintenance. According to an SMM survey, as of September 23, the operating rate of 50 EAF steel mills nationwide mainly producing building materials was 37.9%, down 0.6% WoW. Demand-side support for steel scrap procurement further weakened. Overall, both spot and futures prices continued to fluctuate this week. Steel scrap prices lack strong momentum for a significant rise but also possess some resistance to declines due to tight resources. Therefore, steel scrap prices are expected to continue moving sideways next week.

Rebar: Demand Release Falls Short of Expectations, Post-Holiday Inventory Buildup Pressure Affects Market Sentiment

This week, rebar prices initially rose then fell, with the current nationwide average price at 3,129 yuan/mt, down 11 yuan/mt WoW. Supply side, production profitability of steel mills varies by region currently. Some mills in East China can maintain a net profit of around 50 yuan/mt, while profitability for manufacturers in Northwest and Southwest China is slightly under pressure, with some already at break-even levels. Short-term production remains normal for now, but if profitability worsens further, a shift to producing other steel varieties is likely. Recently, steel scrap prices have been relatively firmer than finished steel, leading to continued declines in profitability for EAF mills, with individual plants planning to reduce operating hours. Short-term operating rates are still expected to decline. Demand side, overall demand saw phased increases this week but has not yet reached last year's level of demand release. Specifically, transaction performance in East China was relatively good, but demand in South China was limited by typhoon weather, and persistent rain in other individual regions caused project waterlogging, making it difficult for demand to improve in the short term. It is understood that the market holds a pessimistic view on post-holiday inventory buildup. On Friday, 100,000 lots of rebar futures warrants exerted downward pressure, possibly pricing in post-holiday inventory buildup pressure early. Looking ahead, weather impact factors in many areas will weaken, pre-holiday restocking demand remains, and spot bottom prices still have support. However, considering the release of post-holiday inventory buildup pressure before the holiday, spot prices may be in a dilemma with limited room for either significant gains or declines.

Hot Rolled Coil: Production Increased, Social Inventory Declined Slightly, Macro Tailwinds Provided Limited Stimulus

This week, hot rolled coil prices mainly fluctuated weakly. Trading atmosphere during the week was moderate to weak, with transactions primarily occurring at low prices. Prices fell by 20-40 yuan/mt compared to last Friday. On the news front, the six departments issued anti-involution signals during the week, strictly prohibiting new capacity for cement clinker and flat glass, which boosted futures. Subsequently, the tariff hike issue led to another pullback in futures. Fundamentally, the impact from maintenance on hot-rolled coil decreased this week, and production rose WoW. Pre-holiday purchasing willingness among end-users improved, turning social inventory from growth to decline. SMM's national survey of 86 warehouses (large sample) showed social inventory of hot-rolled coil at 3.6793 million mt, down 31,100 mt WoW. By region, except for South China where inventory buildup was significant due to typhoon effects, other regions experienced destocking. However, the transfer speed from producer's warehouses fell short of expectations, and overall inventory continued to build up, though the rate of buildup narrowed significantly. Looking ahead, next week's news will focus on PMI index changes, but overall prices are expected to remain weak and volatile, with the most-traded contract price range at 3,280-3,360. Be cautious of the risk of further price pullback after the holiday.

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