The raw material news disturbance has been digested, and ferrous metals may struggle to rise further next week [SMM Steel Industry Chain Weekly Report]

Forecast for Next Week: Raw Material News Disturbances Digested, Ferrous Metals May Struggle to Rise Further

This week, ferrous metals bottomed out. Early in the week, Hebei initiated a new round of Level-II environmental protection response, with some steel mills in Tangshan and Handan adding new maintenance plans. Simultaneously, the news about steel export licenses, which had been largely digested last Friday, contributed to the futures market bottoming out early in the week. Later in the week, the National Development and Reform Commission (NDRC) and five other departments issued the "Benchmark and Baseline Levels for Key Areas of Clean and Efficient Coal Utilization (2025 Edition)", which may accelerate the exit of small and medium-sized coal enterprises in the short term. Additionally, online rumors suggested that China National Energy Group plans to suspend purchases of imported coal, fueling market expectations for a future supply contraction in coking coal and coke, leading the gains. In the spot market, there was a temporary increase in volume, but it remained primarily driven by just-in-time procurement. Spot sheets & plates struggled to keep up with the price increases, and the spot-futures price spread narrowed. In the short term, according to the SMM survey, the daily average hot metal production dropped by 14,200 mt WoW and is expected to fluctuate near the bottom. The support for raw material prices driven by news is unsustainable. For steel products, with production at low levels, finished steel continued its off-season destocking trend, resulting in relatively small current pressure, but the overall driving force is limited. Overall, ferrous metals bottomed out this week amid news-driven speculation, but the fundamental support is limited. The actual impact of the steel export licenses is difficult to gauge before specific implementation, though it may cause intermittent disturbances. Attention should also be paid to short-term effects from other raw material news. Generally, ferrous metals are in a bottoming phase, with further upside likely constrained.

Iron Ore: Prices Caught in a Dilemma, Expected to Continue Sideways Movement Next Week

Iron ore futures prices showed a fluctuating upward trend this week, with imported ore following the rise, while domestic ore prices dropped slightly. The fundamental picture for iron ore continued to weaken. However, supportive macro policy news this week, coupled with short-term alleviation of steel supply pressure due to mill maintenance and declining finished steel inventory, jointly boosted market sentiment, driving iron ore prices to follow the overall ferrous complex higher. For port spot cargoes, the weekly average price of PB fines at Shandong ports rose by 4 yuan/mt WoW. Looking ahead to next week, although blast furnaces at some individual mills are gradually resuming production, environmental protection-driven production restrictions in Hebei and other areas are expected to last until month-end, combined with impacts from rotational blast furnace shutdowns in some regions. Hot metal production is likely to remain low, making a significant improvement in iron ore demand difficult. Fundamentals cap the upside room for prices, but considering the supportive year-end macro atmosphere and rising market expectations for policies like interest rate cuts and RRR cuts, which may provide some support to sentiment. Additionally, tight medium-grade ore structure also provides bottom support for prices. Overall, iron ore prices are expected to continue their sideways movement next week.

Coke: Market May Be in the Doldrums Next Week, Strong Expectation for the Third Round of Price Cuts to Materialize

Regarding news, some steel mills initiated the third round of coke price cuts, reducing the price for wet-quenched coke by 50 yuan/mt and for dry-quenched coke by 55 yuan/mt, effective from 00:00 on December 22, 2025. Supply side, recent stricter environmental protection policies have led coke enterprises to continue passive production restrictions, with coke oven operating rates declining further, resulting in reduced coke supply. However, most coke enterprises still maintain profits, showing moderate production enthusiasm. Demand side, end-use demand for finished steel remains poor, leading to a seasonal decrease in daily average hot metal production at steel mills. Some mills are controlling coke inventory and maintaining just-in-time procurement for coke. Raw material fundamentals, coal mines are proactively controlling production due to factors like safety production and completion of annual production targets, leading to a tightening coking coal supply. Recent market sentiment is relatively rational, and expectations for a third round of coke price cuts have led to similarly weak expectations for coking coal prices. Downstream procurement is mainly just-in-time, with little restocking demand. Inventory at some coal mines is still accumulating. However, coking coal futures rose, improving market sentiment. Coking coal prices may start to stabilize next week, with some key coal types expected to rebound. In conclusion, the coke market may be in the doldrums next week, with a strong expectation for the third round of price cuts to materialize.

Steel Scrap: Supply-Demand Weakness Pattern Emerges, Price Trend Stabilizes

On the supply side, affected by cooling temperatures in north China, transportation is constrained, leading to tight receipt of raw materials at processing bases and reduced arrivals at some mills in northern regions. On the demand side, EAF mills currently still maintain production profits, with most enterprises operating at a normal pace. However, pressured by the transmission of downward pressure on finished steel prices, steel enterprises maintain a cautious attitude towards steel scrap procurement, mostly restocking based on demand. Overall, the current market is characterized by a strong wait-and-see atmosphere, limiting trading activity. Subsequently, colder weather will suppress scrap dismantling and demolition activities, leading to a supply reduction. But considering the ongoing weak demand for finished steel and pressure on mill profits, steel scrap prices are expected to continue their fluctuating trend.

Rebar: Price Center Shifts Lower, Supply-Demand Weakness Pattern Likely to Persist

This week, rebar prices moved erratically. The current national average rebar price is 3,181 yuan/mt, down 32 yuan/mt WoW from December 12. On the supply side, EAF steel mills did not see significant fluctuations in profitability this week, maintaining stable overall production and operation. Blast furnace steel mills, directly affected by the environmental protection-driven production restriction policy in northern regions, experienced a phased pullback in hot metal production, somewhat alleviating supply-side pressure. On the demand side, persistently low temperatures in north China restrict outdoor construction conditions, with steel markets in some areas nearing a semi-holiday state, leading to a decrease in end-user procurement activity. In south China, although a small number of projects entered a rush to meet deadlines phase, market purchasing remained primarily just-in-time stockpiling, without large-scale stockpiling phenomena. The overall pattern of weak demand in the steel industry is difficult to substantially improve in the short term. Overall, the domestic steel market continues to operate with weak supply and demand, so steel prices are expected to mainly fluctuate and adjust in the short term. The market trend going forward will need to focus on raw material price movements, the implementation of winter stockpiling policies, and changes in end-use demand.

Hot-rolled coil: Pre-holiday restocking demand to be appropriately released next week, providing price support

Hot-rolled coil prices strengthened this week, with the price center moving higher. Market confidence increased somewhat, and overall trading activity improved. In terms of supply, maintenance at steel mill hot-rolling lines increased further this week, leading to a further reduction in hot-rolled coil production. On the demand side, market demand is in the seasonal off-season this week, and the weekly apparent demand for hot-rolled coil has weakened. Regarding inventory, the social inventory of hot-rolled coil in 86 warehouses nationwide (large sample) as surveyed by SMM was 3.9955 million mt this week, down 122,200 mt WoW, a decrease of 2.97% WoW. Social inventories nationwide continued to destock this week. On the cost side, coke prices held steady this week, while iron ore prices rose, strengthening cost support for hot-rolled coil. Regarding macro news, rumors of RRR cuts and interest rate cuts by the PBOC increased, specifically a 25 bp LPR cut and a 50 bp RRR cut, heating up market sentiment and benefiting commodity prices. Looking ahead, coke prices are expected to fall next week, and iron ore prices are expected to move sideways. The cost for hot-rolled coil may change within a narrow range. Combined with the appropriate release of pre-holiday restocking demand, hot-rolled coil inventories may continue to destock, providing support for spot hot-rolled coil prices. The most-traded hot-rolled coil futures contract is expected to trade in the 3,230-3,330 range next week.

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