Bullish Factors Insufficiently Fermented, Pressure Remains for Further Upside [SMM Steel Industry Chain Weekly Report]

Forecast for Next Week: Insufficient Bullish Factors to Sustain Further Upside, Pressure Remains

This week, ferrous metals first stabilized then rose, with divergent performances across products. Coking coal and coke remained the strongest, while rebar and iron ore were relatively weak. Early in the week, intensified environmental and safety inspections in the Wuhai area of Inner Mongolia, coupled with strict checks on overproduction, led to production halts and cuts at some coal mines, pushing coking coal and coke prices higher. However, finished products struggled to follow the increase. Later in the week, the inventory data for the five major steel products showed continued destocking WoW, easing market concerns about destocking. Combined with the upcoming conclusion of the macro meetings, market sentiment peaked on Thursday but cooled again approaching the weekend. In the spot market, as the September-October peak season drew to a close, end-users primarily purchased as needed, making large-scale concentrated procurement unlikely.

In the short term, according to SMM survey tracking, hot metal production fell by 2,100 mt WoW. Due to stricter environmental protection measures in some regions, short-term hot metal growth may fall short of expectations but remains high. Rumors suggest a coke price increase will be implemented next Monday, providing short-term cost support that is not easily broken. On the steel side, with the September-October peak season nearing its end, inventories of the five major steel products continued to destock WoW, albeit slightly later than usual, failing to support a price rally. Overall, raw materials still have short-term support, but considering that macro optimism will eventually be digested, ferrous metals are expected to rise first then fall next week, with limited overall upside space.

Iron Ore: Hot Metal Production Declines, Prices Under Pressure

This week, iron ore prices fluctuated repeatedly. Market expectations for policy outcomes from the ongoing Fourth Plenum supported sentiment and provided some support for ore prices. However, fundamentals remained under pressure. The market widely anticipated a significant drop in hot metal production, but so far, blast furnace maintenance has been limited, with actual production only slightly decreasing, indicating that iron ore demand, while marginally weakening, remains resilient. This also made spot support stronger than futures. The weekly average price of PB fines at Shandong ports rose slightly by 2-3 yuan/mt WoW. Looking ahead to next week, iron ore shipments are expected to pull back; meanwhile, some steel mills have gradually scheduled maintenance, and hot metal production declines are expected to widen. Coupled with the potential implementation of a second round of coke price increases, which would further squeeze steel mill profits, more regions may increase blast furnace maintenance, putting significant pressure on iron ore demand. However, US-China tariff negotiations are set to begin next week, and the probability of a US Fed interest rate cut has risen to 96%. If implemented as expected, this could boost market sentiment. Overall, iron ore prices are expected to be in the doldrums next week, but with macro sentiment providing a floor, the downside space is relatively limited.

Coke: Market Bullish Sentiment Increases, Second Round of Price Increases to Be Implemented Next Monday

In news, steel mills in Tangshan, Tianjin, and other areas accepted the second round of coke price increases of 50-55 yuan/mt. Supply side, coking plant profits further decreased, with some plants implementing production cuts. Overall operating rates were stable with a slight decline, but shipments were smooth, and overall inventory remained at low levels. Demand side, daily average hot metal production remained at a relatively high level, blast furnace operations at steel mills were stable, and rigid demand for coke persisted. However, steel mill profits were under pressure, maintenance incidents increased, and most mills maintained a purchase-as-needed strategy. Raw material fundamentals, this week some coal mines in the Wuhai area suspended production due to environmental safety inspections, leading to a reduction in regional supply. Inquiries from downstream traders and actual transaction orders increased, coal mine shipments were smooth, and coking coal inventory decreased to varying degrees. Additionally, BHP may cut its coking coal business in Australia this Thursday, raising expectations of reduced overseas Australian coal supply. In the short term, coking coal prices are expected to be generally stable with a slight rise. In summary, market bullish sentiment increased, and the coke market may hold up well in the short term.

Steel Scrap: When Will the Market Tug-of-War End Amid the Supply-Demand Standoff?

Recently, steel scrap prices fluctuated rangebound. Supply side, the circulation of steel scrap resources in the market is relatively limited currently, and scrap yards generally face difficulties in purchasing. The limited market supply provides strong bottom support for scrap prices, curbing the downside room. Demand side, influenced by rangebound fluctuations in futures, wait-and-see sentiment is strong, and transaction performance is weak. End-user procurement is mostly for rigid demand, with limited overall volume. Some steel mills, as their immediate profits remain unfavorable, have restrained production enthusiasm and exhibit a strong willingness to control costs. Overall, the current steel scrap market is in a tug-of-war between cost support and weak demand. Steel scrap prices are expected to continue fluctuating rangebound in the short term.

Rebar: Market Continues to Be Led by Fundamentals; Spot Prices Face a Dilemma Between Rising and Falling

This week, rebar prices rose slightly, with the current nationwide average price at 3,065 yuan/mt, up 9 yuan/mt WoW. Supply side, blast furnace steel mills are generally in a loss-making phase, with some mills successively scheduling annual maintenance. Additionally, a few manufacturers have reached full annual production, and short-term maintenance plans also exist, suggesting a high probability of production reduction later. Furthermore, the loss situation for EAF steel mills has not improved; this week's operating rate continued its slight downward trend. However, by month-end, a few mills in the southwest consider building some inventory before year-end and have production resumption plans, so next period's electric furnace operating rate may see a slight increase. Demand side, recent weather improvements in Central and South China have normalized project supplies, releasing some demand. Meanwhile, the Northeast region has entered winter, and currently, procurement volumes for most projects have increased, showing an overall improvement in demand. It is understood that a few steel mills in the southwest face significant inventory pressure and have recently actively reduced prices for sales. Until the pressure on mill inventory is digested, market prices still risk hitting bottom. Overall, macro news was neutral, with market movements primarily driven by fundamentals. Although inventory destocking continued, levels remained high compared to the same period in recent years. Producer cash flow pressures were significant, and destocking is expected to accelerate in the short term, putting spot prices under upward pressure. Spot prices are anticipated to move sideways next week.

Hot-Rolled Coil: Limited Macro Tailwinds, Prices May Remain in the Doldrums Next Week

This week, hot-rolled coil prices opened lower and then rose slightly, with overall trading activity recovering. Supply side, steel mill profits remained under pressure, hot-rolling maintenance increased, and hot-rolled coil production decreased. Demand side, market demand improved slightly, with an important conference boosting market confidence, leading to a slight increase in weekly apparent demand for hot-rolled coil. Inventory side, SMM social inventory for hot-rolled coil stood at 4.3664 million mt, up 78,900 mt WoW, an increase of 1.84% WoW. National social inventory continued to build this week, but the rate of buildup narrowed further. Cost side, coke prices stabilized this week with a proposed increase not yet implemented, while iron ore prices rose slightly, strengthening overall cost support for hot-rolled coil. Looking ahead, the implementation of the second round of coke price increases is strongly expected next week, while iron ore prices may turn downward, leading to narrow changes in costs. Furthermore, as the conference did not introduce strong policies, hot-rolled coil prices are likely to remain in the doldrums. The most-traded contract for hot-rolled coil is expected to trade in the range of 3,180-3,300 next week.

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