Macro & Fundamental Changes Relatively Small, Ferrous Metals Rebound Still Awaits Time [SMM Steel Industry Chain Weekly Report]

Forecast for Next Week: Limited Changes in Macro & Fundamentals, Ferrous Metals Rebound Awaits Time

This week, ferrous metals bottomed out after a wavelike decline, with coking coal and coke showing stronger performance than other varieties. Early in the week, the market digested news that the US threatened to impose 100% tariffs on Chinese imports in November. Escalating Sino-US trade tensions led to weak market sentiment, coupled with persistent supply-demand imbalances, causing finished product futures to fall to near three-month lows. Later in the week, inventory data for the five major steel products showed destocking compared to the first week after the holiday, although hot-rolled coil inventories continued to accumulate. Ferrous metals bottomed out, with hot-rolled coil underperforming other varieties. In the spot market, post-holiday procurement by end-users did not see significant release, while some speculative demand purchased at lows, albeit in relatively small volumes.

Short-term, according to SMM survey tracking, hot metal production fell by 4,100 mt WoW. Some steel mills face stricter environmental protection measures and expectations of production restrictions, suggesting short-term hot metal growth may fall short of expectations but remains at high levels. Additionally, coke price hikes are still underway, providing cost support that is unlikely to collapse in the short term. On the steel side, as we approach the end of the September-October peak season, the fact that demand has underperformed in the peak season is evident. While inventories of the five major steel products destocked WoW, hot-rolled coil destocking remains sluggish, which will constrain any price rises. Overall, although the Fourth Plenum will be held next week, policy expectations are low. Further macro tailwinds may need to wait until the month-end release of the 15th Five-Year Plan. Given persistent fundamental pressures, ferrous metals are expected to experience bottom fluctuations in the short term, with a rebound awaiting time.

Iron Ore: Policy Support Expectations, Prices Expected to Stabilize and Rebound Next Week

This week, iron ore futures prices fell significantly, but spot demand provided support, resulting in relatively small declines. For port spot prices, the weekly average for PB fines at Shandong ports fell by 6 yuan/mt WoW. Looking ahead to next week, as the impact of the National Day holiday ends, port unloading efficiency will recover, and iron ore port arrivals are expected to return to high levels. However, considering currently low iron ore inventory levels, supply pressure remains relatively small. Demand side, if steel mill losses continue to widen, blast furnace maintenance plans may increase, potentially further weakening iron ore demand. Additionally, the Fourth Plenum will be held next week; although the market reaction is mediocre, policy expectations persist. Any favorable policy releases could drive ore prices higher. Overall, iron ore prices are expected to stabilize and rebound next week, with the average price likely to rise slightly.

Coke: Demand Constraints Offset Cost Support, Market Expected to Remain Stable Next Week

Supply side, coke enterprises overall production levels are relatively stable, with smooth shipments and no immediate inventory pressure. However, recent cost increases have narrowed coke enterprise profits. Demand side, steel mills showed high production enthusiasm, maintaining rigid demand for coke. However, the inventory buildup of finished products was significant, with market transactions being relatively weak and prices continuously falling. Steel mill profits shrank, leading to purchasing as needed for coke. In terms of raw material fundamentals, coal mine production was basically stable. Recently, coke prices were temporarily stable, boosting moderate coking coal market sentiment. The pressure on coal mines to ship goods was relatively small, and some coke producers began to make appropriate purchases, resulting in more increases than decreases in online auction transaction prices. Coal mines had a strong reluctance to budge on prices, with expectations of price hikes. In summary, it is difficult for the second round of coke price increases to materialize, and the coke market is expected to remain stable next week.

Steel scrap: Bullish and bearish factors intertwine, prices may continue to fluctuate rangebound next week

The current steel scrap market shows a pattern of weak supply and demand. On the supply side, the shipping pace from scrap yards has noticeably slowed down. This change directly led to a pullback in steel scrap arrivals at major steel enterprises, providing a temporary bottom support for steel scrap prices. On the demand side, downstream steel demand has not been effectively released, and overall performance remains sluggish. Currently, some steel enterprises are facing dual pressures of a depressed market and high production costs, significantly limiting their production enthusiasm. They adopt conservative strategies in steel scrap procurement, suppressing actual demand for steel scrap. Overall, the current steel scrap market is intertwined with bullish and bearish factors, and it is expected that short-term steel scrap prices will continue to fluctuate rangebound, with limited upside and downside room.

Rebar: Although producer sentiments diverge, the downside room for bottom prices is relatively small

This week, rebar prices fell, with the nationwide average price now at 3,056 yuan/mt, down 48 yuan/mt WoW. On the supply side, the profitability of blast furnace steel mills continued to be squeezed, with most mills reporting net losses. Some northwestern mills have even experienced cash flow losses, with some having already scheduled early annual maintenance or switching to other product types, leading to a decrease in construction steel production. Recently, the overall profitability of electric furnaces remained unchanged, still in a loss-making phase. However, with some individual mills resuming production as planned this week, the operating rate slightly increased. Before profitability improves, the operating hours will continue to be maintained at off-peak electricity levels. On the demand side, northern regions are gradually entering the heating season, with concentrated rush-to-meet-deadlines demand being released in the northeastern region. Additionally, end-user project procurement demand in east China performed well, with a noticeable increase in overall transactions, while other markets saw generally mediocre performance. In summary, with the upcoming plenary session, there are still expectations for macro news, but producer sentiments are divided. Despite losses, steel mills are optimistic about Q4, anticipating positive news to boost market sentiment. However, traders' shipments fell short of expectations, and they continue to prioritize securing profits, showing a slightly pessimistic attitude. Supply and inventory pressures showed signs of easing, leaving limited downside room for bottom prices. However, regional demand diverged, and upward momentum from demand remained constrained. Spot prices are expected to fluctuate near the bottom next week, with the possibility of a temporary rally if positive news emerges during the conference.

Hot-Rolled Coil: Pessimism Dominates, Supply Pressure High, Short-Term Prices in the Doldrums

Hot-rolled coil prices were in the doldrums this week. Trading activity was moderate to weak, with transactions mainly concluded at lower prices. Prices fell by 50-100 yuan/mt compared to last Friday. Fundamentally, the impact from maintenance on hot-rolled production this week was 56,800 mt, up 28,800 mt WoW. Next week, the impact is projected to be 176,200 mt, an increase of 119,400 mt from this week. Some steel mills have short-term maintenance plans, leading to a slight correction in supply, but overall supply pressure for the entire month remains high. According to SMM statistics, the total inventory of hot-rolled coil in 86 national warehouses (large sample) reached 5.5219 million mt, an increase of 206,300 mt WoW, with significant inventory builds particularly in North and South China. Cost side, although a slight reduction in blast furnace hot metal output is anticipated, overall levels remain high. Meanwhile, coke prices are expected to increase, providing relatively strong cost support. Looking ahead, market focus is on the potential sentiment boost from the Fourth Plenum and the 15th Five-Year Plan. From a fundamental perspective alone, the supply-demand imbalance for hot-rolled coil persists. The most-traded contract is forecasted to fluctuate between 3,180 and 3,260 yuan/mt next week.

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