Limited Short-Term Upside and Downside for Ferrous Metals [SMM Steel Industry Chain Weekly]

Forecast for Next Week: Limited Room for Ferrous Metals in the Short Term

This week, finished steel consolidated at lows and then rebounded slightly, while coking coal and coke showed overall satisfactory performance. At the beginning of the week, both fundamentals and news showed no significant changes, and ferrous metals continued to consolidate at lows. In the second half of the week, market rumors said that BHP’s union announced it would take strike action; expectations of short-term supply tightness from the potential strike, combined with higher energy costs from Middle East conflicts, led to a rebound in iron ore prices, which drove ferrous metals higher. Online auctions for coking coal showed mixed results; steel mill profits narrowed; negotiations for the 10th round of coke price increases were intense; coke support weakened, and futures corrected. In the spot market, end-users restocked at low prices on an as-needed basis; the spot-futures price spread narrowed, and some arbitrage demand emerged for purchases. However, under the influence of the off-season, speculative sentiment was weak. In the short term, according to SMM’s survey tracking, daily average hot metal output fell by 15,400 mt WoW this week; steel mill profits narrowed; maintenance plans increased compared to the previous period; the 10th round of coke price increases faced greater difficulty in taking effect; cost support remained in the doldrums in the short term; attention should be paid to supply disruptions on the raw material side. In steel, although the production side was under pressure and declining, the off-season characteristics deepened, and sheets & plates entered a phase of continuous inventory buildup. Supply and demand for finished steel were both weak. Overall, ferrous metals remained in a bottom-consolidating phase, with limited room for movement in the short term. Future focus remains on raw materials.

Iron Ore: News-Driven Turbulence Intensifies; Prices to Move Sideways Next Week

This week, iron ore prices rebounded from lows, but fundamentals continued to weaken. The rise was mainly driven by news of the BHP union strike, coupled with renewed tensions in the Middle East, which pushed crude oil prices higher and lifted ocean freight rates. Looking ahead to next week, iron ore fundamentals are expected to remain weak. Hot metal output still has room to edge down slightly, while the supply side stays high. The supply-demand gap may widen further, and port inventories face pressure from inventory buildup, which will weigh on ore prices. However, next week will be a key period for verifying several major rumors, adding significant market uncertainty. Amid a mix of bullish and bearish factors, iron ore prices are expected to primarily move sideways.

Coke: Fundamentals Weaken; Market Likely to Stabilize Next Week

Supply side, coke producers’ overall profits saw a slight recovery, with most operating at marginal profits and maintaining stable production. Meanwhile, traders developed a fear of heights and actively sold, further increasing coke supply. Demand side, blast furnace operating rates at steel mills remained high, and rigid demand for coke still showed some resilience. However, as the off-season impact on steel deepened, steel sales were sluggish, and steel mills in many regions announced blast furnace maintenance plans. Hot metal output weakened, easing the pace of coke purchases, leading some mills to implement volume controls. On the coking coal front, many coal mines in Shanxi remained shut and production resumptions were slow, making it difficult to release coking coal output. Inventory pressure at mines remained relatively mild, and mine price quotes were stable for now. However, recent high-priced resources dampened downstream procurement interest, and with end-use demand weak, overall market sentiment leaned toward a wait-and-see attitude. In summary, coke fundamentals weakened, and the near-term coke market likely operated steadily.

Steel scrap: With supply and demand both weak in fundamentals, prices likely continued consolidating.

Supply side, in the high-temperature rainy season, scrap generation slightly contracted, while tight supply of tax-invoice resources for steel scrap persisted. Business operations at many scrap recycling and processing facilities were notably constrained, keeping overall supply tight. Demand side, steel scrap prices continued softening recently and cost competitiveness gradually emerged, but in the off-season, end-use steel product demand faced pressure—blast furnace mills underwent maintenance one after another, leaving limited interest in using scrap. Most EAF steel mills operated below the break-even line, cutting production or even halting it, limiting scrap demand. On net, steel scrap fundamentals showed a supply-demand both weak pattern, and near-term steel scrap prices likely maintained a consolidation trend.

Rebar: Increasing weather impact deepened off-season demand weakness.

This week, rebar prices moved up then down, with the nationwide average price at 3,104 yuan/mt, up 15 yuan/mt WoW from last Friday. Supply side, losses at blast furnace mills recently intensified, and some mills had already started maintenance or reduced their loads, leading to a notable drop in construction steel output. For EAF steel mills, though small-bar production helped reduce losses, overall profitability changed little, allowing them to maintain flat-rate valley-power production. However, in some southern Chinese mills, high inventory pressure triggered furnace shutdowns or reduced operating hours, dragging down the overall operating rate. Demand side, recently extreme weather disrupted progress at project sites in southern and central Chinese markets, slowing construction progress and delaying procurement pace—demand performance was poor. In east China, weather improved in phases and transactions slightly improved, but nationwide the overall market remained in the off-season demand weakness stage. Inventory side, mill inventories and social inventories continued accumulating, but due to supply-side reductions, the pace of total inventory buildup slowed WoW. It is understood that southwestern resources shipped out to central and northwestern markets, pressuring local prices with bottom prices continuously slipping lower. Additionally, some mainstream warehouses in east China allocated rust-spotted resources, and with typhoon weather approaching, some construction sites in Zhejiang had already stopped vehicle access, weakening trader sentiment and sparking low-price front-running phenomena—which was unhelpful for stabilizing floor prices. Looking ahead, in the near term, the pace of supply-side reductions continued lagging the decline in demand, making it difficult to ease the supply-demand imbalance during the off-season. However, with most mills already below the break-even line, bottom-level cost support remained, leaving relatively limited downside room for spot prices but insufficient upward momentum. Macro-side developments and raw material news still needed attention.

Hot-Rolled Coil: Cost Support Remains, Price Likely to Consolidate Near Bottom Next Week

HRC prices consolidated and strengthened this week, with transactions seeing a moderate recovery. Supply side, maintenance on rolling lines increased somewhat, and overall HRC production edged down slightly. Demand side, apparent demand for HRC improved notably this week. Expectations for production cuts at steel mills were relatively strong, while cost support remained in place. Downstream manufacturers made appropriate purchases, and the overall transaction atmosphere turned better. Inventory side, SMM’s nationwide 86-warehouse (large sample) HRC social inventory stood at 4.3425 million mt, down 33,200 mt WoW, a decline of 0.76%. By region, destocking was more pronounced in northeast China, a slight accumulation occurred in the central China market, while south China, east China, and north China markets saw marginal destocking. Cost side, iron ore average prices moved sideways and coke prices held steady, keeping HRC cost support in place. Looking ahead, cost support for HRC remains, but with poor off-season demand, HRC prices may consolidate near the bottom, with the price fluctuation range yet to open up. In summary, the most-traded HRC contract is expected to trade within the 3,250-3,330 range next week, and attention will be paid to whether production restrictions expand further.

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