The short-term downside potential for ferrous metals is relatively limited [SMM Steel Industry Chain Weekly Report]

Forecast for Next Week: Limited Near-Term Downside for Ferrous Metals

This week, ferrous metals mostly rose early and then stabilized, while coking coal and coke remained weak. Early in the week, a call between the Chinese and US presidents, rumors of new property policies, and the release by Shaanxi and other provinces of a work plan for disposing of coal mines below 600 ktpa provided supportive macro and industry expectations, lifting the whole complex. Later in the week, news that Mongolia and Russia plan to raise coal exports to China weighed heavily on coking coal and coke, and restructuring rumors around Vanke briefly turned sentiment bearish. Fundamentally, the five major steel products continued to draw down inventories, though the pace slowed. In the spot market, inquiries warmed during the first-half rally, but off-season demand could not sustain the uptick. Near term, SMM tracking shows daily average hot metal output fell 8.4 kt WoW, yet some mills resumed production after maintenance, limiting further declines, so raw-material support remains intact. For steel, the five major products keep destocking; although demand is still in its off-season lull, lower expected supply keeps overall pressure modest. In sum, trading logic still rests on fundamentals; with limited internal imbalance, finished steel is relatively resilient. After fluctuating at highs this week, a rebound is possible next week, but a likely coke price cut could cap both height and duration, leaving the next move dependent on further macro developments.

Iron Ore: Hot Metal Output Keeps Falling; Weak Sideways Movement Expected Next Week

Iron ore prices continued to climb this week, with futures briefly topping 800 yuan/mt before pulling back. Fundamentals are still deteriorating, yet sentiment improved and the most-traded DCE contract is approaching delivery, so the spot-futures spread is being repaired, pushing futures higher. Port spot cargoes saw larger gains as medium-grade ore was temporarily tight; Shandong port PB fines weekly average price rose 3 yuan/mt WoW. Looking ahead, hot metal output will keep sliding, further weakening overall demand and widening the supply-demand gap, putting prices under pressure. However, with the January contract near delivery, spread repair still offers some support. Meanwhile, recent domestic macro news has turned positive, and expectations are building ahead of December’s Politburo meeting, which may offset part of the fundamental weakness. Overall, iron ore is expected to move sideways with a slight downward bias next week, but downside room is limited.

Coke: Supply-Demand Structure Loosening; Price Cut Likely Next Week

Several mills have initiated a coke price cut to take effect at 00:00 on 1 December. Supply side, coke plants are profitable and raising operating rates, so output keeps increasing, yet shipment pace has slowed and inventories are building. Demand side, mainstream steel products remain loss-making and mills hold reasonable coke stocks, so restocking has slowed; some mills plan to expand maintenance, further weakening coke demand and prompting controls on arrivals. On raw-material fundamentals, coal-mine restarts have lagged expectations and new stoppages have emerged, tightening coking coal supply short term. However, sentiment has clearly soured: trading is sluggish, online auction failure rates are rising, participants are mostly wait-and-see, mine order signing is mediocre, and some coal grades still face downside. In summary, coke’s supply-demand balance is loosening and bearish sentiment is growing; a price cut is likely next week.

Steel Scrap: Trading Activity Subdued; Weak Sideways Trend to Dominate Short Term

Supply side, scrap prices have fluctuated recently; traders remain cautious, adopting quick-in/quick-out tactics to avoid price risk, so market flows center on short-term turnover. Demand side, finished-steel sales are mediocre and costs are high; under profit pressure, mills prefer not to stockpile scrap and instead keep scrap inventory at reasonable levels to control costs, restraining procurement demand. Overall, wait-and-see sentiment is strong and trading activity is limited. As weather turns colder, demolition and dismantling will slow, likely reducing scrap generation. Scrap prices are therefore expected to remain in a weak sideways pattern, though downside room and duration should be relatively limited.

Rebar: Prices to Fluctuate Short Term; Awaiting Policy Signals

Rebar prices fluctuated upward this week; the nationwide average spot price is 3,149 yuan/mt, up 33 yuan/mt WoW. Supply side, some blast furnace steel mills remain in the red on rebar and mostly stick to planned output, so supply pressure is manageable. EAF steel mills, benefiting from recent finished-steel gains while scrap procurement costs lag, have returned to slight profitability and are running mainly during off-peak hours; short-term output will increase slightly. Demand side, sentiment-driven buying early in the week warmed trading and lifted end-user purchase willingness, boosting short-term trading volume; activity cooled later in the week as high-priced resources met resistance. Overall, fundamentals have not materially changed; the spot-futures rally was driven mainly by short-term sentiment. Domestic construction steel prices are expected to keep fluctuating short term; watch for changes in fundamentals and macro policy direction.

Hot-Rolled Coil: Fundamentals Soft; Sideways Movement Expected Next Week

Today the most-traded HRC futures contract closed at 3,302, up 0.27% on the day. This week the most-traded contract fluctuated at highs; spot prices rose 20-30 yuan/mt WoW and weekly trading was mediocre. Macro news: the Fed’s Beige Book showed US consumer spending edged lower and labor demand was generally soft. After several Fed officials voiced support for an interest rate cut, market-implied probability of a cut has risen to about 80%. Fundamentally, HRC supply and social inventory both nudged higher this week while apparent demand cooled. SMM survey data indicate next week’s output will see only narrow adjustments, keeping supply ample; off-season demand remains soft, so fundamentals offer little impetus for a sharp rally. Going forward, December brings expectations of a Fed rate cut and domestic policy support, offsetting weak domestic demand and export pressure; focus on actual implementation. With no clear macro narrative, HRC prices are expected to continue sideways next week, with the most-traded contract likely to trade between 3,250 and 3,330.

1. Data referenced in the report can be viewed in the SMM database (https://data-pro.smm.cn/).

2. For more SMM steel information, analysis reports, and database access, please contact Li Ping, SMM Steel Division, at 021-51595782.

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