Forecast for Next Week: Risks in Ferrous Metals Have Started to Build Up
This week, ferrous metals remained in the doldrums. The main logic during the week was still weakening cost support. On Tuesday, Iran proposed charging transit fees for the Strait of Hormuz, while Trump made conciliatory remarks, saying that “even if the Strait of Hormuz remains largely closed, [he is] willing to end military action against Iran.” Market expectations for tighter crude oil supply weakened, and declines in the energy sector dragged down the coal sector, weakening the cost-side logic. During the week, inventories of the five major steel products continued to decline, but apparent demand still remained at a low level for the same period in previous years, offering limited fundamental support to futures. In the spot market, buying interest was moderate, mainly focused on restocking at low prices. Spot prices were relatively firm, and the spot-futures price spread widened somewhat.
In the short term, according to SMM survey tracking, daily average hot metal output this week was up 25,700 mt WoW. The impact of subsequent maintenance continued to weaken, but at the same time, inventory buildup in mainstream ore at 10 ports was evident, weakening fundamental support for raw materials. Meanwhile, macro influence may find it difficult to return to previous levels, so short-term support from the raw material side is likely to remain neutral. On steel products, output is set to gradually rebound, while apparent demand data remained less than satisfactory, making it difficult for the steel supply-demand structure to provide support. Overall, the macro logic has weakened, but the possibility of periodic disruptions remains. With bullish and bearish factors intertwined, close attention should be paid to peak-season demand performance and changes in ex-China geopolitical conditions. In the short term, the market may continue in a fluctuating trend.
Iron Ore: Repeated Macro Disturbances & Weakening Fundamentals, Prices Face Downside Risk Next Week
This week, iron ore prices first rose and then fell, with the price center moving lower. Fundamentals still provided some support; however, macro news remained volatile, causing broad commodity prices to fluctuate accordingly. In addition, market rumors that long-term contract negotiations had ended further accelerated the decline in futures. In terms of port spot cargoes, the weekly average price of PB fines at Qingdao Port fell 11 yuan/mt WoW. Looking ahead to next week, on the fundamentals, the impact of cyclone weather in Australia is expected to end, and global iron ore shipments are expected to rebound; demand side, there will be no new blast furnace production resumptions or maintenance next week, but due to the impact of earlier production resumptions, hot metal production is expected to maintain a slight increase. Overall fundamental support is weakening. On the macro front, the two major influencing factors remain unresolved, and news flow will continue to disturb ore prices; however, considering weak market reaction, coupled with the contract rollover of the most-traded iron ore contract, with smaller fluctuations in the 05 contract, imported ore prices are expected to move sideways next week.
Coke: The Market May Remain Temporarily Stable Next Week, with Further Gains Difficult
In terms of supply, coking coal costs for coke producers declined somewhat. In addition, the first round of coke price increases has been fully implemented, significantly narrowing losses for coke producers and improving production enthusiasm. Coke supply increased steadily, and with moderate downstream demand, shipments from coke producers were smooth, while their own inventories continued to decline. Demand side, steel mills gradually resumed blast furnace production, and daily average hot metal production continued to increase, lifting rigid demand for coke. However, coke arrivals at steel mills were relatively good recently, with most mills' coke inventory at mid-range levels, and overall procurement sentiment was average. On the coking coal side, production at most coal mines remained stable, but an accident at a coal mine in Lvliang, Shanxi led to localized tightness in coking coal supply. Affected by the decline in futures, downstream coke and steel enterprises became more cautious in procurement, market wait-and-see sentiment increased, and coal varieties that had posted excessive gains earlier faced greater shipment pressure, while the failed auction rate in online bidding continued to rise. In the short term, the coking coal market may remain in the doldrums. Overall, coke supply and demand fundamentals turned looser, and with weaker recent cost support for coke, the short-term coke market may remain temporarily stable, with further gains facing greater difficulty.
Steel Scrap: Mild Adjustment in Supply and Demand Pace, Steel Scrap Market Operated Cautiously
Supply side, the pace of steel scrap resource releases accelerated slightly this week, and steel mills' steel scrap arrivals edged up accordingly. Demand side, both the operating rate and capacity utilization rate of electric furnace steel mills rebounded slightly this week, but constrained by enterprise operating profitability, room for electric furnace mills to continue raising production remained relatively limited. According to the SMM survey, the operating rate of 50 electric furnace steel mills nationwide mainly producing construction materials stood at 41.42% this week, up 1% WoW; capacity utilization rate was 42.6%, up 0.86% WoW. Overall, current market sentiment remained cautious, with traders mostly adopting a fast in-and-out strategy. Steel scrap prices are expected to continue moving sideways in a narrow range in the short term, and close attention should be paid to spot finished steel transactions and the recovery of electric furnace mill profits.
Rebar: Diverging Regional Sentiment, Weak Fundamental Drivers
Rebar prices consolidated this week, with the current nationwide average price at 3,143 yuan/mt, down 2 yuan/mt WoW. Supply side, some electric furnace mills recently still slightly increased operating hours, mainly because after adjusting specification premiums, overall profit levels improved. However, producing medium specifications remained in the red, and given that profitability is unlikely to improve significantly later, operating levels may mostly be maintained. This week, some blast furnace mills adjusted their product mix, with rebar increasing and coil decreasing, resulting in a slight decline in overall production. Most steel mills are expected to maintain previous production levels next week. Demand side, rainy weather in east China affected shipments, while in other regions, weaker futures hurt market sentiment, leading to overall shipments being slightly mediocre and peak-season demand release falling somewhat short of expectations. Inventory side, although mill inventory and social inventory both continued to decline this week, the destocking slope of total inventory was relatively slow, mainly because social inventory destocked more slowly than in previous years. In the short term, attention will remain on the pace of total inventory destocking. It is understood that regional sentiment is currently divided: producers in northern regions mostly held prices firm while making shipments, whereas in southwest China, prices showed signs of leading declines in order to accelerate inventory destocking or transfers. Looking ahead, rebar lacked strong fundamental drivers and had yet to break out of its trendless pattern. In the short term, the market will continue to accelerate destocking, providing insufficient support for spot price gains. Spot prices are expected to remain rangebound next week.
Hot-Rolled Coil: Apparent Demand Remains Unpromising, Leaving Room for Price Cuts Next Week
This week, the average price of hot-rolled coil edged lower, while overall transactions weakened slightly WoW. In terms of supply, maintenance on rolling lines increased somewhat this week, and overall hot-rolled coil production declined. On the demand side, market demand performed poorly this week, falling rather than rising, and the overall trading sentiment was average. In terms of inventory, SMM data showed hot-rolled coil social inventory at 5.5039 million mt this week, down 19,000 mt WoW, or down 0.34% WoW. The decline in nationwide social inventory slowed this week. By region, inventory built up WoW in east China and north China, while inventory declined WoW in northeast China, south China, and central China. On the cost side, this week’s increase in coke prices was implemented, but a slight decline in iron ore only marginally strengthened cost support for hot-rolled coil. Looking ahead, the supply-demand imbalance in hot-rolled coil fundamentals still existed, with expectations for production to gradually increase and weak apparent demand data, making the supply-demand structure unable to support current prices. Overall, as macro logic weakened and fundamentals carried greater weight, bearish factors in the market were relatively numerous. Therefore, the most-traded hot-rolled coil contract is expected to trade in the 3,230-3,320 range next week.
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2. For more SMM steel content, including news, analytical reports, and databases, please contact Li Ping of the SMM Steel Division at 021-51595782
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