Macro Stimulus Temporarily Eases, Ferrous Metals Expected to Maintain Sideways Movement [SMM Steel Industry Chain Weekly Report]

Forecast for Next Week: Macro Tailwinds Ease; Ferrous Metals Expected to Move Sideways

This week, ferrous metals first rose then fell, with an overall upward trend. In the first half of the week, due to the release of news over the weekend that "China and the US reached a basic consensus in consultations," coupled with mid-week announcements from five government departments addressing "involution-style" competition, ferrous metals opened high and surged rapidly. In the latter half of the week, fundamentals showed continued inventory drawdowns for the five major steel products. On the macro front, the US Fed cut interest rates by 25 basis points, and China and the US held a successful meeting, but without any talks exceeding expectations. Market sentiment pulled back after peaking, and ferrous metals prices followed suit. In the spot market, futures experienced significant volatility this week, boosting market activity, with both speculative and arbitrage demand entering the market, but end-users remained relatively cautious.

Short term, according to SMM survey tracking, daily average hot metal production fell by 24,000 mt WoW due to environmental protection-driven production restrictions in Hebei. However, with the lifting of the heavy pollution emergency response, hot metal output is expected to rebound next week. Coupled with expectations for a third round of coke price increases and continued strict safety inspections at coal mines, cost-side support remains strong in the near term. For steel products, inventory drawdowns for the five major steel products continue, aligning with seasonal trends, but performance is slightly weaker than the same period last year. Overall, macro tailwinds pushed ferrous metals to highs this week, but no new immediate macro catalysts are expected. Although raw material costs provide support, weak finished steel reality shows limited improvement, failing to provide strong momentum. Ferrous metals are forecast to maintain a narrow, fluctuating trend next week.

Iron Ore: Macro Sentiment Supports Prices Despite Weakening Fundamentals; Prices Expected to Fluctuate at Highs

This week, iron ore prices fluctuated upward. Although fundamentals weakened, macro tailwinds continued to support ore prices. Port spot prices for PB fines in Shandong ports averaged a weekly increase of 20 yuan/mt WoW. Looking ahead to next week, macro news will continue to influence prices. Fundamentally, with the lifting of environmental protection-driven production restrictions in Hebei, steel mills will resume normal production on November 1, and hot metal output is expected to rebound to above 2.4 million mt, supporting ore prices. However, considering significant price increases from domestic mines next week and the high likelihood of a third round of coke price increases, steel mill profits will face further pressure, increasing maintenance intentions. Iron ore demand is expected to weaken further, limiting price gains. Therefore, iron ore prices are forecast to be caught between opposing forces next week, maintaining a fluctuating trend at highs, with the average price slightly higher than this week.

Coke: Tight Fundamentals Support Strong Expectations for Third Round of Price Increases Next Week

On the news front, major coke enterprises initiated a third round of coke price increases, but as of Friday afternoon, no steel mills had responded. Supply side, some coke enterprises saw decreased production enthusiasm due to losses and environmental protection impacts, resulting in reduced coke output, and supply may continue to tighten. Demand side, environmental protection-driven production restrictions in Hebei have been lifted, and hot metal output is expected to recover next week. Some steel mills with low inventory are urging deliveries, indicating strong rigid demand for coke. Raw material fundamentals, output from overproducing coal mines remains restricted, making it difficult to release coking coal supply. Coupled with recent recovery in downstream demand, low coal mine inventory, and favorable market trading atmosphere, online auction prices have mainly risen. Coking coal prices are expected to continue increasing next week. Overall, coke supply-demand fundamentals remain tight, and the third round of coke price increases is strongly anticipated to materialize next week.

Steel Scrap: Tug-of-War Between Sellers and Buyers Continues—When Will the Market Fluctuation Pattern Break?

Recently, the domestic steel scrap market has shown a fluctuating trend, with no significant improvement on either supply or demand side. Supply side, current supply remains sluggish; suppliers are cautious about future market trends. Due to unclear market expectations, most suppliers show low enthusiasm for shipments and weak willingness to actively release resources. Demand side, affected by futures fluctuations, market participants exhibit strong wait-and-see sentiment. End-users mainly restock based on rigid demand, and the overall pace of steel demand release remains moderate. Currently, some steel enterprises have fallen into losses, significantly strengthening control requirements for raw material procurement costs. Overall, the steel scrap market is currently influenced by both bullish and bearish factors. Although the tight supply pattern can provide some support for scrap prices, weak demand performance makes it difficult to form an effective boost. Therefore, short-term steel scrap prices are expected to maintain a fluctuating trend. However, for some steel mills with moderate scrap arrivals, the possibility of slightly lowering scrap procurement prices to further compress costs and improve profitability cannot be ruled out.

Rebar: Sentiment Drives Phased Price Rise, but Weak Reality May Limit Upside Potential

This week, rebar prices fluctuated upward, with the current nationwide average price at 3,108 yuan/mt, up 44 yuan/mt WoW. Supply side, recent steel mill profitability continued to compress, with widespread losses on production. Several steel mills in North China have scheduled maintenance plans by year-end, so supply pressure may remain lower than the same period in previous years. EAF steel mills are experiencing losses, mainly producing two-end specifications or high-value-added products. This week's operating rate slightly declined, but considering some mills aim to maintain annual output, production levels are likely to remain at current stages later. Demand side, the rising trend early in the week improved market trading atmosphere. Additionally, some Northeast projects are expected to rush to meet deadlines, and previously suppressed demand in South China saw increased volume, resulting in moderate overall transactions. Inventory side, both mill and social inventory continued destocking, but levels remain higher than the same period last year. In the short term, producers still face destocking pressure. Overall, the October peak season demand failed to materialize. As northern regions enter winter, outdoor construction is restricted, and demand is expected to weaken seasonally. During the transition between off-peak and peak seasons, with total inventory at a high level YoY, producers are prioritizing faster shipments, limiting the upside for spot price increases in the short term. Currently, there are expectations for a third round of coke price hikes, and cost side continues to provide some support for the bottom of spot prices. Spot prices are expected to continue fluctuating rangebound next week, with relatively limited upside and downside room.

Hot-rolled coil: Macro tailwinds fade in the short term, prices expected to be in the doldrums

This week, HRC prices rose first then fell, with spot prices up 20-60 yuan/mt WoW. Trading sentiment during the week was moderate to weak, making it difficult to sell at higher prices. Key macro events during the week mainly revolved around the US Fed interest rate cut and China-US talks, which boosted market sentiment and strengthened futures. Additionally, supported by environmental protection-driven production restrictions in Tangshan, iron ore prices held up well, and the coke price hike was implemented, leading to relatively strong overall cost support. Returning to the HRC supply-demand pattern, a slight correction in short-term supply, marginal improvement in demand, and a slight decrease in inventory pressure have led to some improvement in fundamentals. On the export front, overall HRC exports weakened WoW this week, with order intake lower than last week. Prices rose too quickly, and overseas customers showed limited acceptance. Looking ahead, considering that the impact from steel mill maintenance is expected to decrease next week and macro tailwinds have faded in the short term, prices are expected to be in the doldrums next week, with the most-traded contract fluctuating in the range of 3,250-3,330.

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