Short-term upward momentum is insufficient, ferrous metals continue to fluctuate rangebound [SMM Steel Industry Chain Weekly Report]

Forecast for Next Week: Insufficient Short-Term Upside Drivers, Ferrous Metals to Continue Fluctuating Rangebound

This week, finished steel products fluctuated rangebound, while raw materials showed divergent trends, with coking coal and coke weakening and iron ore rising during the week, though the weekly average price edged down WoW. In the first half of the week, the National Development and Reform Commission held a video conference on energy supply guarantees for the 2025-2026 heating season and held talks with China Coal and Shenhua. Amid expectations of supply guarantees, coking coal and coke futures plunged significantly, while other ferrous metals showed no significant changes. In the latter half of the week, fundamentals saw the inventory of the five major steel products continue to decline, but demand weakened further. On the macro front, the US government ended its shutdown, improving market sentiment and pushing ferrous metals prices slightly higher. In the spot market, speculative demand improved in the latter half of the week, while end-users mainly purchased as needed at low prices.

Short term, according to SMM survey tracking, daily average hot metal production rose by 4,900 mt WoW this week. However, some steel mills, considering losses and the winter break, may face risks of reduced hot metal output later. Still, considering concessions from coking coal and coke, support from the raw material side is unlikely to collapse quickly. For steel products, inventory of the five major steel products continues to decline, with construction materials outperforming sheets & plates in destocking, but off-season demand characteristics are emerging. Overall, short-term market trading logic has returned to fundamentals. The raw material side still has support, while demand for finished steel will continue its off-season performance. Subsequent focus will be on supply-side contraction. Ferrous metals are expected to maintain a fluctuating rangebound trend next week, with raw materials likely showing divergent trends between iron ore and coke.

Iron Ore: Prices Hit Bottom and Rebounded This Week, Expected to Continue Weak and Rangebound Fluctuations Next Week

This week, iron ore prices showed a trend of hitting bottom and rebounding. At the beginning of the week, futures prices fell to a recent low of 756 yuan/mt, mainly affected by market expectations of declining hot metal production. From mid-week, futures prices stabilized and rebounded, but the overall price center still shifted lower WoW, with the weekly average price of PB fines at Shandong ports down 3 yuan/mt WoW. Domestic iron ore prices diverged, with prices in Tangshan, Qian'an, and Qianxi in Hebei up 1-5 yuan/mt, while prices in west Liaoning, Chaoyang, Beipiao, and Jianping were basically flat; prices in east China fell by 20-25 yuan/mt. Looking ahead to next week, the proportion of steel mills facing losses has further expanded, especially inland mills suffering severe losses, leading to an increase in blast furnace maintenance. Additionally, steel mills in north-west China are gradually entering winter breaks, so hot metal production is expected to pull back significantly. Supply side, the first shipment from Simandou has been dispatched, and recent overseas weather disruptions have weakened. Some mines may push for annual targets at year-end, potentially driving continued increase in shipments, overall presenting a pattern of strong supply and weak demand, limiting upside room for prices. However, considering that the supply-demand imbalance in the industry has not yet intensified, if steel mill inventory continues to decline, iron ore prices will also find it difficult to fall sharply. Overall, iron ore prices are expected to remain in the doldrums next week.

Coke: Fourth Round of Price Increases Implemented, Market May Hold Up Well Next Week

On the news front, mainstream steel mills in Hebei and Shandong accepted the fourth round of coke price increases, with hikes of 50-55 yuan/mt, effective from 00:00 on November 15. Supply side, coking costs continued to rise, losses at coke plants widened, and there are plans to intensify production restrictions. Coke production at coke plants declined slightly, but shipments remained smooth with no immediate inventory pressure. Demand side, steel prices fluctuated downward, losses at steel mills worsened, and some mills increased blast furnace maintenance, leading to reduced demand for coke and a focus on purchasing as needed. Raw material fundamentals, winter safety inspections at coal mines became stricter, inventories at some mines were low, and supply growth was limited. However, the pace of restocking by downstream buyers slowed, market sentiment toward price increases weakened, online auctions showed mixed performance, and the number of failed auctions increased. Currently, most coal mine inventories have fallen to low-to-medium levels, and with pre-sale orders in place, coking coal prices are supported. In the short term, coking coal prices are likely to remain stable. In summary, cost support is strong, and the fourth round of coke price increases is expected to be implemented. However, both supply and demand for coke are weak, making further price hikes difficult. The coke market may hold up well in the near term.

Steel Scrap: Steel Mills Show Strong Desire to Bargain Down Prices, Fluctuating Trend Difficult to Reverse

Supply side, rebar futures showed a fluctuating trend, market wait-and-see sentiment intensified, and scrap yards and traders accelerated shipments to avoid potential price volatility risks. Daily average arrivals of scrap at steel mills increased slightly WoW. Demand side, finished steel market transactions showed mediocre performance, operational pressure at steel enterprises persisted, and some mills intensified control over raw material purchase prices, with a noticeably stronger desire to drive down prices. Overall, the current scrap market exhibits a "marginally looser supply, relatively weak demand" pattern. Until steel mill profits show substantial improvement, scrap prices are likely to maintain a fluctuating trend in the short term.

Rebar: Shortages Strengthen Producers’ Willingness to Hold Prices Firm, Limited Upside and Downside in the Short Term

This week, rebar prices were in the doldrums, with the nationwide average price at 3,091 yuan/mt, up 13 yuan/mt WoW. Supply side, steel mills in Xinjiang concentrated on annual maintenance, and most mills in other regions, already facing losses, scheduled annual maintenance or shifted production from rebar to strip, leading to a further decline in output. Individual electric furnace mills resumed production as planned this week, and the operating rate increased slightly. However, mills originally scheduled to resume production next week postponed due to losses, so the operating rate may stabilize with a weakening trend. Demand side, many northern regions entered the winter break phase, leading to seasonal demand decline. Currently, transactions in east China showed moderate performance, but projects in other regions mainly purchased as needed, resulting in mediocre transaction performance. Inventory Situation: Supply reduction continued to drive destocking, but social inventory pressure remained higher YoY compared to previous years. It is understood that markets in central-western China and north China experienced spot shortages and missing specifications. Coupled with relatively low local spot prices, traders showed little willingness to sell at a loss, while steel mills actively held prices firm, providing strong support for the bottom of spot prices. Looking ahead, price fluctuations in the raw material side are not synchronized, weakening cost support; until mill profitability improves, current low production levels will be maintained. Additionally, demand-side factors are not enough to drive prices upward. Therefore, spot prices are likely to maintain a sideways movement in the short term, with limited upside or downside. Later attention should be paid to the price difference between north and south China. Some steel mills in north China already have plans to move resources south, but east China inventories are high for the same period. If the north-south price spread remains advantageous, southward movement may suppress southern material prices, which is unfavorable for spot price bottoming.

Hot-Rolled Coil: Prices Consolidated This Week, Expected to Move Sideways with a Weak Bias Next Week

Hot-rolled coil prices consolidated this week, with spot transaction volume at a moderate level and decent low-price trading. Supply and demand side, the impact from maintenance on hot-rolled production this week was 144,000 mt, and multiple steel mills have winter maintenance plans, so supply pressure dropped back slightly. However, production remained at medium-to-high levels YoY. Demand side, apparent demand continued to recover this week. Total hot-rolled coil inventory now stands at 5.4458 million mt, down 82,700 mt WoW. Based on SMM's large-sample social inventory performance, except for continued pressure in the northeast market, other markets are destocking. The north China market, which had higher inventory buildup earlier, also saw some relief. Inventory is expected to continue declining next week. Cost side, according to an SMM survey on steel mill maintenance, hot metal output faces a risk of decline next week, putting ore prices under pressure. However, considering that coking coal and coke still have room for negotiation, cost-side support remains in the short term. Overall, approaching year-end, close attention should be paid to steel mill rolling line maintenance. Supply-side performance takes precedence over demand-side narrative in the short term, and room for improvement in the hot-rolled coil supply-demand imbalance is limited. Therefore, hot-rolled coil is expected to be in the doldrums next week, with the most-traded contract fluctuating between 3,200-3,270.

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