Short-Term Raw Material Prices May Swing Wildly [SMM Steel Industry Chain Weekly Report]

Forecast for next week: Short-term raw material fluctuations may be significant

This week, ferrous metals fluctuated downward, with raw materials declining notably more than finished steel. Cost-side logic weakened further during the week. Mid-week, both the US and Iran indicated they had entered the final stage of finalising peace talk details, causing overseas crude oil prices to plunge and dragging down the coal sector. In the latter half of the week, rumors emerged that negotiations between China Mineral Resources and BHP would be announced next week, with iron ore leading the downward trend. On the finished steel side, inventory of the five major steel products continued to destock, amid a structure of both rising supply and demand. Spot market side, futures were weak, end-user purchasing enthusiasm was moderate, the spot-futures price spread widened somewhat, and some spot-futures traders in certain markets began to take profits.

In the short term, according to SMM survey tracking, daily average hot metal output rose by 8,400 mt WoW this week. Going forward, hot metal supply will be sustained, and demand on the raw material side performed moderately. However, if the iron ore long-term contract negotiations conclude, expectations of looser future iron ore supply will be significantly elevated, and the short-term support logic on the raw material side will continue to weaken. On the steel side, both supply and demand increased, with fundamentals maintaining a neutral structure. The bullish factor is that recent order-taking for semi-finished product exports has been strong, and coupled with the easing of Middle East tensions, export demand is expected to see incremental growth. Overall, bullish factors currently affecting raw materials have receded, and next week marks a critical juncture for two major negotiations, with attention still needed on how negotiations progress. Considering that finished steel still has support, short-term raw material fluctuations may be greater than those of finished steel.

Iron ore: Influenced by external news, prices may continue in the doldrums next week

Iron ore prices continued to decline this week. From a fundamental perspective, affected by earlier shipment reductions, port arrivals continued their downward trend last week, while steel mill blast furnace hot metal output continued to rise to elevated levels. Growing iron ore demand drove a notable increase in port pick-up volume, port inventory destocking widened, providing strong support for spot prices. However, early in the week, both sides of the US-Iran conflict announced ceasefire negotiations, causing crude oil prices to drop sharply and weakening iron ore cost support. Mid-week, news related to long-term contract negotiations emerged with results to be announced next week, triggering sharp declines in both domestic and overseas futures prices. From the port spot cargo perspective, the weekly average price of PB fines at Qingdao Port fell by around 20 yuan/mt WoW. Looking ahead to next week's imported ore market, from a fundamental perspective, short-term port arrivals remain at low levels, hot metal production driven by earlier production resumptions still has slight room for incremental growth, and current hot metal output is already at elevated levels, providing strong rigid demand support for iron ore. Price fluctuations are expected to be more driven by news: on one hand, the situation during US-Iran conflict negotiations is prone to reversals, potentially triggering futures volatility; on the other hand, whether the long-term contract negotiations have concluded has yet to be verified. Iron ore prices are expected to continue their fluctuating trend in the doldrums next week.

Coke: Leading Coke Producers Initiated Price Increase, Market May Be Generally Stable with Slight Rise Next Week

News-wise, leading coke producers initiated a price increase for coke by 50-55 yuan/mt, effective from 00:00 on April 13. In terms of supply, most coke producers currently had relatively small losses, with stable operating conditions and good shipments, and in-plant coke inventory continued to decline. Demand side, steel mills maintained high and stable operating rates, hot metal production fluctuated at highs, increasing daily coke consumption. Additionally, affected by maintenance on some railway sections, coke arrivals were hindered, and coke inventory at some steel mills declined slightly. Coking coal side, most coal mines maintained stable production with normal output, though a few mines experienced production suspensions or reductions. After earlier restocking, downstream coking coal inventory levels improved, and a wait-and-see attitude toward high-priced resources increased, with market sentiment pulling back somewhat. In summary, some coke producers still held bullish expectations for the market outlook, and the coke market is expected to be generally stable with slight rise in the short term.

Steel Scrap: Supply-Demand Imbalance Not Yet Prominent, Prices Likely to Move Sideways

Supply side, operating rates of shredded scrap processing enterprises rose this week, with social steel scrap resource circulation increasing in tandem, and steel scrap arrivals at steel mills also improved accordingly. Demand side, long-process steel mills mainly restocked on a just-needed basis, with a cautious procurement pace, flexibly adjusting based on production plans and inventory levels. EAF steel mills were constrained by business profitability, with low production enthusiasm and clearly insufficient motivation to increase output. According to an SMM survey, as of April 7, the operating rate of 50 major rebar-producing electric furnace steel mills nationwide was 41.42%, flat WoW. Overall, the supply-demand imbalance for steel scrap was not yet prominent, and prices are expected to continue moving sideways next week, with little likelihood of a trending market.

Rebar: Demand Unable to Support Spot Prices, Downward Pressure Remains at the Bottom

Rebar prices were in the doldrums this week, with the current nationwide average price at 3,127 yuan/mt, down 16 yuan/mt WoW. Supply side, steel mill production diverged across regions this week. In east China, steel mills that previously underwent maintenance resumed production, with output gradually returning to normal. In south China, northwest, and north China, some steel mills started new maintenance, resulting in relatively small changes in overall production this week. Some regions still faced difficulties in steel scrap collection, and coupled with the recent decline in rebar prices, operating profitability of EAF steel mills was further compressed. Most steel mills maintained previous operating levels, but considering that some mills have production resumption plans next week, operating rates may see a slight rebound. Demand side, intermittent rainfall in many areas limited downstream construction progress. Additionally, according to downstream feedback, more than half of the projects that started after the Chinese New Year were carryovers from last year's old projects, with some new projects set to commence in H2, and demand release is expected to continue to be weaker than last year. Inventory side, total inventory continued seasonal destocking, but the pace of producer inventory destocking slowed down, and the destocking trajectory will remain a key focus in the short term. Overall, the current rebar market has not yet seen a prominent supply-demand imbalance, but weak demand has been unable to support spot price increases. The market lacked internal momentum, and price movements largely followed raw material fluctuations. Rebar spot prices are expected to continue trading in a range-bound pattern next week. Meanwhile, as producers held divergent views, most traders adopted a "lock in profits" approach, and rebar floor prices still face certain downward pressure in the short term.

HRC: No Significant Improvement in Fundamentals, Expected to Hover at Lows Next Week

Average prices of cold-rolled and hot-rolled products remained largely stable this week, with overall transactions showing no significant change WoW, though low-price transactions and basis trades in some regions were moderate. In terms of supply, rolling mill maintenance decreased this week, and overall HRC production increased. Demand side, apparent demand increased WoW this week. Inventory side, SMM-tracked HRC social inventory stood at 5.4382 million mt this week, down 65,600 mt WoW, or -1.19% WoW. Nationwide social inventory continued destocking this week. By region, south China, north China, and northeast China markets saw solid destocking, while east China and central China were still experiencing inventory buildup. Cost side, iron ore negotiations remained unresolved, and coupled with relatively loose fundamental expectations, ore prices were in the doldrums. Coking coal and coke prices held steady, and cost support for cold-rolled and hot-rolled products was generally limited. Looking ahead, coke prices are expected to increase next week, and significant uncertainty remains over whether iron ore negotiations can be successfully concluded. Costs may move sideways around this week's price levels. HRC fundamentals showed no significant improvement, production is still expected to increase going forward, and further upside in apparent demand is limited. Overall, upward and downward drivers for HRC prices were both relatively small, and prices are expected to hover at lows. The most-traded HRC contract is expected to trade in the 3,250-3,300 range next week.

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