Finished products lack independent momentum and will continue to fluctuate with raw materials in the short term [SMM Steel Industry Chain Weekly Report]

Forecast for Next Week: Finished Steel Lacks Independent Drivers, Short-Term Fluctuations to Follow Raw Materials

This week, ferrous metals mostly followed an inverted "N" trend, with iron ore leading the gains to hit a near nine-month high, and coking coal and coke touching limit-up intra-week. Post-holiday, overall capital market sentiment was buoyant, with major A-share indices reaching a 10-year high, and rapid rallies seen in precious and non-ferrous metals; ferrous metals sentiment also recovered, with futures bottoming out. Mid-week, unverified reports indicated that 26 coal mines in Yulin, Shaanxi would have capacity reduced by 19 million mt. Although later disproven, this temporarily boosted market sentiment, pushing coking coal and coke to limit-up and finished steel near previous highs. In the spot market, at the start of the new year, with the spot-futures price spread at parity, speculative and futures-spot demand increased, but end-users primarily made just-in-time procurement.

Short-term, according to SMM survey tracking, average daily hot metal production rose by 15,800 mt WoW, and is expected to continue increasing steadily. Combined with pre-holiday restocking demand from steel mills gradually starting, support from the raw material side will gradually solidify. For steel products, inventories of the five major steel products accumulated post-holiday, but within a normal range. SMM survey indicates sheet & plate production rebounded significantly in January MoM, suggesting future supply pressure may increase; monitor the entry of speculative and futures-spot capital. Overall, finished steel currently lacks clear independent drivers. Focus on post-mid-month raw material restocking; iron ore restocking demand expectations remain relatively strong, finished steel may follow with potential increases, but short-term consolidation is expected.

Iron Ore: Fundamental Support & Capital Favour Lead Ferrous Gains

Iron ore prices rose sharply this week, with a maximum intra-week gain of 4.09%, hitting a near nine-month high. Since January, some steel mills gradually resumed production, and the end of environmental protection-driven production restrictions in Hebei prompted blast furnace restarts, leading to continued recovery in hot metal production; SMM statistics show average daily hot metal output increased by 15,800 mt WoW. Simultaneously, approaching the Chinese New Year, steel mills started stockpiling early, boosting overall demand. Additionally, from a macro perspective, although geopolitical conflicts have limited actual impact on iron ore supply and demand, they still disturb market sentiment. Coupled with a looser macro policy environment since the new year, market expectations for domestic interest rate cuts and RRR cuts have intensified, further fueling price increases. Looking ahead, hot metal output is expected to continue recovering, and as steel mills enter concentrated pre-holiday restocking, iron ore demand is likely to sustain growth, continuing to support ore prices. Note that recent long-term contract negotiations have intensified; subsequently, be alert that port restriction policies might ease after negotiations conclude, potentially leading to concentrated release of mid-grade ore supply, which could bring temporary pressure on prices.

Coke: Cost Support Not Solid, Prices May Remain Under Pressure Next Week

Supply side, overall coke production levels remained stable temporarily, and due to improved sales, some coking plants increased production. Demand side, steel mill profitability has been restored, and some mills that completed maintenance have resumed production, gradually increasing daily average hot metal production, creating a rigid demand for coke. However, finished product prices are under pressure again, and the desire to bargain down coke prices still exists. In terms of raw material fundamentals, some previously suspended coal mines have gradually resumed operations, leading to an increase in supply. On Friday, coking coal and coke futures pulled back, with market sentiment starting to weaken. Some coal types continued to correct, and currently, downstream coke and steel enterprises are not performing well, without any large-scale restocking activities. Coke prices may still have room for further declines next week. In summary, cost support is not solid, and demand performance is weakening. There is still a fifth round of bearish expectations for coke, and the coke market is expected to be generally stable with slight fall next week.

Steel scrap: Supply contraction, prices may fluctuate upward next week

On the supply side, during the New Year's Day holiday, processing sites across regions reported a significant reduction in raw material supply. The decrease in raw material output affected processing efficiency, leading to a continued decline in social inventory and a weakening of shipment sentiment. On the demand side, long-process steel mills are mainly maintaining normal production, while short-process electric furnace mills are performing moderately, with a slight increase in overall operating levels and steel scrap consumption. Looking ahead, the tight supply situation is unlikely to change. It is expected that the steel scrap market will be generally stable with slight rise next week, but there is a need to be vigilant about the risk of a pullback due to lower-than-expected finished product demand and policy changes.

Rebar: Significant sentiment fluctuations, weak fundamental drivers

This week, rebar prices retreated after a rapid rise, with the nationwide average price now at 3,189 yuan/mt, up 11 yuan/mt WoW. On the supply side, although steel mill profitability has improved, seasonal off-season demand means that mills are not very enthusiastic about increasing production. Additionally, some mills still have annual maintenance plans, so total construction material production remains largely unchanged. Some mills with higher wire rod production earlier are prioritizing the digestion of previous inventories, and some iron water is being redirected from wire rod to rebar in January. Short-process steel mills have maintained their benefits recently, with some slightly increasing operating hours. However, considering the usual annual maintenance schedule, it is expected that by the end of January, mills will gradually enter the shutdown maintenance phase. On the demand side, demand in the central and western regions has clearly weakened after the New Year's Day holiday, while east China still has projects rushing to meet deadlines before the month-end, with demand expected to gradually deteriorate before the end of the month. In terms of inventory, there was a temporary buildup in many areas during the New Year's Day holiday, but some demand was released after the holiday. Based on the average historical inventory buildup time, continuous inventory buildup is expected to start four weeks before the festival, meaning inventory pressure will become evident from late January. Overall, the previous market transactions were driven by capital and sentiment fluctuations, with finished product prices following suit. However, the fundamental logic of supply and demand for construction materials has not changed. Considering the later raw material restocking behavior of steel mills and the concentrated winter stockpiling policy period, the market is in a tug-of-war between longs and shorts, with spot prices likely to move sideways.

HRC: Raw Materials Led the Gains This Week, HRC Prices Expected to Pull Back Next Week

HRC futures prices weakened today, falling 1.02% for the day, with the most-traded contract settling at 3,294 yuan/mt. HRC prices fluctuated within a range of 10-20 yuan/mt this week, while spot cold-rolled coil prices saw minor adjustments, with weekly shipments improving. The recent rally was primarily driven by rotational gains in the precious metals and industrial products sectors, with capital flows and market sentiment playing significant roles. Fundamentally, HRC production showed a pattern of decreasing initially before increasing this week. Maintenance at hot-rolling lines increased early in the week, leading to a drop in HRC output; however, the impact from maintenance later decreased from 267,300 mt to 91,000 mt, resulting in a MoM increase in HRC production from the previous period and a gradual rise in supply pressure. Demand side, overall conditions remain characteristic of the off-season. The market was dominated by purchasing as needed, with higher volumes transacted at lower prices and weaker performance for high-priced deals, although speculative demand has increased recently compared to before. Raw material side, performance was mixed. Iron ore prices were relatively strong, with the SMM survey showing daily average hot metal output up 15,800 mt WoW, but coke prices are still expected to fall, leaving overall cost support neutral. In summary, HRC itself currently lacks clear upward or downward drivers and is expected to follow cost trends in the short term, with the most-traded contract forecast to fluctuate between 3,250 and 3,350 next week.

1. For data mentioned in this report, please visit the SMM database (

2. For more SMM steel news, analysis reports, database access, etc., please contact Li Ping from the SMM Steel Department at 021-51595782.

*The views in this report are based on information collected from the market and comprehensive assessments by the SMM research team. The information provided is for reference only, and investors assume their own risks. This report does not constitute direct investment research or decision-making advice. Clients should make decisions cautiously and not use this report to replace their own independent judgment. Any decisions made by clients are unrelated to SMM. Additionally, SMM is not responsible for any losses or liabilities resulting from unauthorized or illegal use of the views in this report.

SMM reserves the right to modify and the final right to interpret these terms.