Ferrous Metals Expected to Continue Holding Up Well Amid the Middle East Conflict and Long-Term Contract Negotiations [SMM Steel Industry Chain Weekly Report]

Forecast for Next Week: Against the Backdrop of Middle East Conflict & Long-Term Contract Negotiations, Ferrous Metals Are Expected to Continue Holding Up Well

This week, ferrous metals fluctuated at highs, with raw materials, iron ore and coke, outperforming steel products. Amid the continued escalation of the Middle East conflict, iron ore and coke held up well, supported by rising ocean freight rates and transmission from coal-coke energy substitution; in the latter half of the week, supply and demand data for HRC and rebar were released. The increase in rebar inventory slowed markedly, but HRC demand was below the same period last year and the post-holiday recovery pace was relatively slow, leaving steel with weak upward momentum overall, while futures retreated after a rapid rise. In the spot market, transactions in the Chinese market were average this week. Outside China, ocean freight rates surged recently, overseas clients showed strong wait-and-see sentiment, and overall transactions saw mediocre performance.
Short term, the Middle East conflict was unlikely to ease quickly, with a higher probability of either a temporary de-escalation or further escalation, and its impact on ferrous metals prices was still viewed as more bullish. Fundamentally, rebar supply and demand rebounded in tandem and were expected to hold in the short term. Domestic HRC demand remained under pressure in terms of release, while overseas geopolitical conflicts combined with rising ocean freight costs further hit HRC exports and intensified supply and demand pressure in the Chinese market. As a result, steel fundamentals lacked strong support in the short term. The main trading themes in the short term remained the Middle East conflict and iron ore negotiations. Steel prices are expected to fluctuate in line with cost movements next week, while the HRC-rebar price spread is unlikely to widen further.

Iron Ore: Negotiations Will Decide the Future Trend, with Equal Chances for Ore Prices to Rise or Fall Next Week

Iron ore prices continued to fluctuate this week, with the weekly average price edging higher and fundamentals improving marginally. Meanwhile, the ongoing Middle East conflict continued to push up ocean freight rates, supporting ore prices. However, affected by long-term contract negotiations, market sentiment turned cautious, some long positions took profit and exited, and trading activity declined somewhat. In the spot market, price fluctuations remained weaker than in futures, with the weekly average price of PB fines at Qingdao Port up 12 yuan/mt WoW.
Looking ahead to next week, iron ore fundamentals are expected to remain solid, and demand is likely to continue rebounding. Affected by a new round of hurricanes, Australian iron ore shipments are expected to decline again, and the pattern of weak supply and strong demand will support ore prices. However, the main variable in the market lies in the long-term contract negotiations. If the negotiations achieve positive results, leading to a full lifting of restrictions on mainstream product resources, short-term supply pressure will surge sharply, and ore prices may face the risk of a steep drop.

Coke: Supply-Demand Imbalance Still Exists, Market May Remain Stable Next Week

In terms of supply, after the Two Sessions ended, operating rates at coke enterprises improved, but most coke enterprises still faced slight losses, suppressing willingness to raise production. At the same time, shipments from coke enterprises improved, and coke inventory continued destocking. On the demand side, blast furnace steel mills resumed work and production, hot metal production is expected to increase, and together with improved steel mill profits and better finished steel shipments, steel mills showed stronger production enthusiasm. However, downstream buyers mostly maintained just-in-time procurement and lacked willingness to purchase for restocking. On the coking coal side, most coal mines maintained normal production, and coking coal supply was relatively stable. Recently, market sentiment improved, inquiries and purchases increased, inventory pressure at coal mines continued to decline, and some mines had pre-sales, while prices of high-quality coking coal resources already rose slightly. In summary, the supply-demand imbalance in coke fundamentals still exists, and the coke market may remain stable next week.

Steel Scrap: Supply Increased Gradually, While Demand Will Be Hard to See Significant Release Due to Profit Constraints

On the supply side, steel scrap processing bases and traders gradually resumed operations this week, and the supply of social resources rebounded WoW. Traders closely monitored daily consumption at steel mills and mostly adopted a quick in-and-out strategy. On the demand side, production resumptions at electric furnace mills accelerated this week. According to the SMM survey, the operating rate of 50 electric furnace steel mills nationwide mainly producing construction materials stood at 38.64% this week, up 3.26% WoW from the previous period, but profitability at most electric furnace mills declined WoW, and enterprises showed strong willingness to control costs. Overall, supply remained loose, while demand will be hard to see significant release due to profit constraints. Steel scrap prices are expected to mainly fluctuate rangebound next week, and later attention should focus on spot rebar transactions and the recovery of electric furnace profits.

Rebar: Prices Fluctuated Rangebound, with Total Construction Steel Inventory Likely to Reach an Inflection Point Next Week

As of March 20, the national average rebar price stood at 3,154 yuan/mt, down 10 yuan/mt from March 13. On the supply side, some electric furnace mills still resumed production this week, and output continued to increase. With relatively low steel scrap costs in the earlier period, coupled with some producers continuing to focus on small-size specifications, there were still slight profits under composite costs, but producing full-specification products was at breakeven or loss-making levels. Therefore, the increase in electric furnace mill output will tend to slow later on. Some blast furnace steel mills considered plate and coil profitability inferior to rebar, leading to a shift of hot metal toward increased rebar production. However, a small number of steel mills still had annual maintenance plans recently, resulting in relatively limited short-term output growth. On the demand side, downstream end-user construction sites resumed work one after another, and demand improved gradually, but affected by multiple news factors, speculative procurement demand in the market did not improve. On the inventory side, mill inventory began to decline this week. Although social inventory still saw an inventory buildup, the growth rate slowed. In addition, projects in Northeast China recently resumed work one after another, so short-term demand may see some increase. Total inventory is expected to reach a destocking inflection point next week. Looking ahead, although rebar fundamentals improved, market trading remained focused on raw materials and overseas geopolitical conflicts. Short-term market operations remained relatively cautious, with producers accelerating the forward movement of mill inventory, while traders continued to adopt quick in-and-out operations. Spot prices are expected to continue fluctuating rangebound, though a phase of raw material-driven gains cannot be ruled out. In the short term, attention should be paid to the slope of destocking.

HRC: Cost Support Is Expected to Strengthen, and Prices May Continue to Be Raised Next Week

The average HRC price strengthened slightly this week, but overall transactions were basically unchanged from last week. In terms of supply, rolling line maintenance decreased this week, and total HRC production increased slightly. On the demand side, market demand recovered slowly this week, falling short of market expectations. Overall trading sentiment in the market was average, with a lack of large-scale purchasing for restocking. On inventory, nationwide HRC social inventory tracked by SMM stood at 5.5591 million mt this week, down 36,300 mt WoW, or down 0.65% WoW. National social inventory continued destocking. By region, except for slight accumulation in Central China and Northeast China, other markets remained in destocking mode. On the cost side, coke prices were temporarily stable this week, but iron ore rose slightly, strengthening cost support for HRC. Looking ahead, the supply-demand imbalance in HRC fundamentals still exists, but the continued Middle East conflict pushed up energy prices, benefiting coking coal and coke. Meanwhile, China-Australia iron ore negotiations continued, and before the negotiation results are finalized, iron ore prices are also likely to hold up well. Cost support for HRC is expected to strengthen, and prices may continue to be raised. Therefore, the most-traded HRC contract is expected to trade in the 3260-3350 range next week.

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