Macro Factors Temporarily Subside, Black Industry Chain May Be in a Short-Term Bottoming Process [SMM Steel Industry Chain Weekly Report]

Forecast for Next Week: Macro Factors Temporarily Subside, Ferrous Chain May Be in a Bottoming-Out Process in the Short Term

This week, ferrous metals showed a clear downward trend, with rebar and coking coal and coke hitting new lows in recent months. Macro factors carried significant weight in trading, and market movements fluctuated widely with them. At the start of the week, the Politburo meeting's description fell short of expectations, with no anticipated property-related policies introduced, leading to subdued market sentiment and a sharp correction in futures prices. Mid-week, market rumors that CICC would participate in a bailout for Vanke improved sentiment somewhat, causing futures to rally quickly, but prices saw a slight correction by the close; the sustainability and substantive impact of property-related news were limited. Later in the week, signals from the US Fed and domestic economic meetings did not exceed expectations, coupled with market rumors that a steel export licensing system would be announced today, to take effect from January 1 next year, sparking concerns about export demand and leading to an expanded decline in futures. In the spot market, continuous declines in futures led to relatively average transaction performance, with speculative demand briefly appearing during rebounds. In the short term, according to SMM survey tracking, the daily average hot metal output fell by 18,100 mt WoW, and some steel mills added maintenance plans. Hot metal production is expected to continue its downward trend, coupled with expectations for further coke price cuts, support from the raw material side remains weak. For steel products, finished steel is currently in a trend of weak supply and demand, with overall pressure relatively small, but also unable to provide new growth drivers. Overall, with macro factors this week materializing without exceeding expectations, market logic has returned to fundamentals. After digesting the pessimistic macro sentiment, ferrous metals may stabilize, with limited downside space in the short term, and the market may be in a bottoming-out process in the near term.

Iron Ore: Market News Disturbs Sentiment, Prices May Continue in the Doldrums Next Week

This week, iron ore prices showed a fluctuating trend. Early in the week, boosted by domestic important meetings and expectations for US Fed interest rate cuts, market sentiment turned optimistic, driving a rebound in futures prices. However, the policy details were released with slightly less force than market expectations, coupled with a further weakening in overall iron ore demand. At the same time, market rumors about new regulations on port storage fees possibly being implemented raised concerns about short-term selling risks. Affected by these factors combined, futures prices turned to a weaker trend. For port spot cargoes, the weekly average price of PB fines at Shandong ports fell by 15 yuan/mt WoW. Looking ahead to next week, fundamental changes in iron ore are limited overall, but the new storage fee regulations have not been fully implemented and may continue to disturb market sentiment. Additionally, market rumors about a possible steel export licensing system have sparked concerns about a subsequent decline in steel exports. Currently, inventories of certain varieties at ports have doubled, posing potential risks to the market. Overall, iron ore prices are expected to continue in the doldrums next week.

Coke: Market May Continue to Weaken, Third Round of Price Cuts Expected Next Week

Supply side, the second round of coke price cuts was implemented, significantly squeezing coking plant profits. Coupled with heavy pollution weather emergency response measures recently activated in multiple regions, some coking plants intensified production cuts. However, sluggish sales led to varying degrees of inventory accumulation at some coking plants. Demand side, while steel mill coke inventories are generally at reasonable levels, continuous declines in steel prices and weak end-use consumption further narrowed profit margins. Expanded blast furnace maintenance at steel mills weakened rigid coke demand, resulting in generally low restocking willingness among mills. Raw material fundamentals, some coal mines remain suspended or under production cuts, with coking coal supply recovering slowly. The second round of coke price cuts negatively impacted downstream procurement sentiment, with mines widely reporting poor follow-up orders. Inventory pressure emerged at some mines, with certain coal types still expected to see price declines. Overall, the coke market may remain in the doldrums short-term, with a third round of price cuts expected.

Steel Scrap: Supply-Demand Imbalance Not Yet Prominent, Prices May Continue Fluctuating

Supply side, cold weather in northern China reduced supplier enthusiasm, with some steel mills reporting lower scrap arrivals. Trader sentiment turned cautious, leading to widespread adoption of quick-in, quick-out operations to avoid risks from price volatility. Demand side, end-use demand remained weak, coupled with downward pressure on finished steel prices, making mills more cautious in scrap procurement. Overall, the scrap market is in a weak equilibrium with no prominent supply-demand imbalance, expecting scrap prices to mainly fluctuate.

Rebar: Market Trading Returns to Fundamentals, Short-Term Prices May Fluctuate Weakly

This week, rebar prices fell, with the nationwide average price at 3,149 yuan/mt, down 41 yuan/mt WoW. Supply side, although recent profitability improved, blast furnace steel mills conducted planned maintenance, leading to continued production declines this period, with low output levels likely maintained until month-end. This week, an electric furnace plant in southwest China resumed production as planned, increasing the overall operating rate. However, as recent profitability gains did not expand further, electric furnace plants may maintain previous production levels short-term. Demand side, mid-week demand saw a slight release, but later, continued futures pullbacks and weather impacts limited market transactions, which fell significantly WoW. Inventory side, inventories continued declining this week, but the destocking speed narrowed, with mill inventory drawdown slowing noticeably. Current mill inventory pressure is relatively small, with some price support and reluctance to sell at lower prices observed. Reportedly, northern steel resources are gradually moving south to Henan, Shaanxi, Shanghai, etc. Although the distributed volume pressure is relatively small, low-priced resources still impact local price stability. Looking ahead, recent macro tailwinds have been fully priced in, and market trading has returned to fundamentals. With demand in a seasonally weak phase and expectations of a third round of coke price cuts adding to the mix, cost support has weakened. Short-term market pessimism has spread slightly, and spot prices are expected to have further downside room next week.

HRC Futures: Macro Factors Subside in the Short Term, Prices Expected to Remain in the Doldrums Next Week

This week, HRC futures were in the doldrums, with the most-traded contract closing at 3,232, down 0.83% for the day. Trading was generally weak throughout the week, especially after futures weakened significantly, reigniting wait-and-see sentiment among traders and making it difficult for them to sell. On the news front, the Politburo meeting, the Central Economic Work Conference, and the US Fed's interest rate cut have all concluded without any surprises, leaving the market in a mediocre state. In addition, speculation about an export licensing system later in the week sparked overall panic, driving prices down. Returning to HRC fundamentals, recent increases in rolling line maintenance have continued to ease supply pressure. On the demand side, downstream buyers are mainly purchasing as needed, with the off-season impact deepening. However, inventories are expected to continue declining in the short term, albeit at a slower pace, resulting in an overall weak supply-demand balance. On the raw material side, coke prices are still expected to fall, and hot metal support has weakened, leading to softer cost support. Overall, with macro factors subsiding and trading returning to fundamental logic, HRC prices are expected to remain in the doldrums next week, with limited upside or downside momentum. The most-traded contract is projected to trade in a range of 3,200-3,270.

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