Forecast for Next Week: Macro Expectations Heat Up but Demand Under Pressure; Ferrous Metals' Consolidation Pattern Hard to Break
This week, ferrous metals showed slight divergence. Coking coal performed relatively strong, while iron ore, coke, and HRC/Wire Rod were generally weak, with iron ore posting the largest decline. News of the US-Iran conflict swung back and forth during the week, but market reaction was mediocre, with the focus more on the demand side. Although coke prices fell through one round of cuts, leading to a slight recovery in steel mill profits, end-use demand continued to weaken. Steel mills' new orders, both domestic and export, showed sluggishness, and inventory pressure gradually increased. Additionally, the impact of production restrictions in Tangshan was limited, and hot metal output still edged down. Overall demand for raw materials contracted further, putting pressure on both raw material and finished steel prices, while spot market trading sentiment remained sluggish.
Looking ahead to next week, iron ore supply is expected to rebound while demand still has downside room, leaving fundamental pressure in place. For coke, the market widely expects a second round of price cuts, and cost support is weakening, offering little effective boost to steel prices. Meanwhile, a new round of typhoon weather is about to impact east China and north-east China. Although other regions are not directly affected by typhoons, they are constrained by high-temperature weather, and end-use demand is expected to weaken noticeably. Shipping pressure on steel mills is increasing, and the pace of inventory buildup may widen. Overall, the fundamentals are pressuring all ferrous metals products.
However, considering the upcoming Politburo meeting and the overall weak Q2 GDP performance, market expectations for bullish policies have heated up, which may provide some support to sentiment. Overall, ferrous metals prices next week are expected to remain in a pattern of repeated consolidation. Key focus should be on steel mills' order-taking progress and the potential disturbance from Politburo meeting news on the futures market.
Iron Ore:Intensifying Conflict Between Fundamentals and Macro Front; Prices Expected to Continue Consolidating Next Week
This week, iron ore futures consolidated on a subdued note, with fundamentals showing simultaneous weakness in both supply and demand. Affected by typhoon weather, iron ore port arrivals fell sharply by 21%, while hot metal output also edged down, and the pace of port inventory destocking narrowed. Looking ahead to next week, the Tangshan area will initiate a new round of key-period environmental protection-related controls. With requirements for steel mill shutdowns and production restrictions in the region, the decline in hot metal output may exceed expectations, and iron ore demand will dip further. The supply side, however, is expected to rebound. There is room for growth in ex-China shipments, and port arrivals are expected to pick up after the typhoon's impact fades. Port inventories are likely to shift to a buildup, gradually increasing supply pressure. Nevertheless, considering the upcoming Politburo meeting and heated market expectations for bullish H2 economic policies, sentiment may boost ore prices, with the possibility of a slight rebound in the short term. Overall, with fundamentals under pressure interacting with heating macro expectations, iron ore prices are expected to remain in repeated consolidation next week.
Coke: Supply-Demand Structure Loosens Further; Second Round of Price Cuts Possible Next Week
In terms of supply, the first round of coke price cuts took effect, and most coke enterprises are in the red. However, coking coal prices have a downward expectation, and current coke oven operating rates remain stable. Furthermore, coke enterprises' sales pace slowed, leading to further accumulation of coke inventory at their plants. On the demand side, end-use demand remains weak. Steel mills' blast furnace maintenance plans have increased, making them cautious about coke procurement and controlling coke arrivals. For coking coal, high-pressure safety inspections at mines persist, and the pace of production resumptions at mines ordered to halt is slow. However, with the first round of coke price cuts landing, market wait-and-see sentiment towards coking coal has increased, trading atmosphere is sluggish, coal mines have few new orders, and online auction failures remain common. But influenced by new coal mine safety regulations, the market broadly believes that ensuring coal supply faces pressure. Short-term coking coal prices are likely in the doldrums.In summary, the coke supply-demand structure has loosened further. The short-term coke market may run weak, with expectations for a second round of price cuts.
Steel Scrap: Mixed Factors Intertwine; Limited Room for Short-Term Price Fluctuations
On the supply side, recent high temperatures have restricted steel scrap processing and circulation. Coupled with tight invoice sourcing and low profit levels at yards, operations mostly focus on quick turnover, with shipment volumes remaining quite limited. On the demand side, blast furnace steel mills are near break-even, leading to cautious scrap purchasing. Meanwhile, multiple steel mills in the Hebei region face controls and production restrictions, causing a slight dip in scrap consumption. During the traditional off-season for demand, electric furnaces mostly maintain mid-to-low production levels, leaving little room for increased scrap usage. Overall, steel scrap fundamentals present a pattern of simultaneous weakness in supply and demand. With mixed factors intertwined, supply and demand remain in a tight balance. Short-term steel scrap prices are expected to have limited room for fluctuation.
Rebar: Weakening Cost Support; Market Operations Remain Cautious
This week, rebar prices rose first then fell. The current nationwide average price is 3,092 yuan/mt, down 20 yuan/mt WoW from last Friday. On the supply side, some blast furnace steel mills recently saw orders for plates and strips worsen, leading hot metal to flow back to construction materials. Combined with a few producers resuming wire rod rolling lines according to plan, production increased WoW. However, EAF steel mills face difficulties in sourcing scrap, and scrap prices are relatively firm compared to finished steel, leading to higher costs and worsening production margins. Some mills reduced operating hours, and a few east China mills even directly sold steel billets. Currently, EAF operating rates are already at mid-to-low levels, with limited room for further decline. On the demand side, this week's staged rally prompted an increase in speculative purchasing, but actual downstream project demand remained hard to grow, affected by high temperatures and rainy weather in many regions. Consequently, overall nationwide transaction performance was still mediocre. Regarding inventory, total inventory continued the off-season buildup trend this week, but the pace of accumulation slowed. It is understood that Shandong market prices are currently at the highest level nationwide, with resources flowing in from steel mills in northwest China, north China, and central China. These external resources have impacted local transactions, leading to a significant increase in resource inventory within Shandong province, indicating downside room for Shandong prices in the short term. Looking ahead, the first round of coke price cuts has taken effect, further weakening cost support. Coupled with the traditional demand off-season, rebar's own fundamental driving force is weak, and bottom-level prices still have room to shift downward. However, the possibility of macro news at month-end providing a floor for prices cannot be ruled out. Short-term spot prices are expected to move sideways.
HRC: Weakness in Both Supply and Demand; Next Week's HRC Price Likely Faces Difficulty Both Rising and Falling
This week, HRC prices drifted lower, and transactions were notably sluggish. On the supply side, rolling line maintenance increased somewhat this week, leading to a slight decrease in overall HRC production. On the demand side, HRC apparent demand worsened this week. High temperatures and rain dragged down downstream operations, end-users purchased on an as-needed basis, and export growth was insufficient, leading to inventory buildup. The weak demand situation is hard to change in the short term. Regarding inventory, this week, SMM's surveyed HRC social inventory across 86 warehouses nationwide (large sample) stood at 4.3937 million mt, up 60,600 mt WoW, or +1.40% WoW. By region, south China and north-east China markets saw high inventory buildup, while central and eastern regions saw narrow destocking. On the cost side, iron ore average prices edged down, and the first round of coke price cuts took effect, weakening HRC cost support. Looking ahead, continued coke price cuts will further weaken HRC cost support. Poor off-season demand leaves HRC prices without upward momentum, but shrinking HRC supply provides support to prices.In summary, the most-traded HRC contract is expected to trade in the 3,250-3,330 range next week, facing difficulty both rising and falling.
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*The views in this report are based on market-collected information and a comprehensive assessment by the SMM research team. The information provided in the report is for reference only, and risks are borne by the user. This report does not constitute direct investment research decision advice. Clients should make decisions cautiously and not substitute this for independent judgment. Any decisions made by clients are unrelated to SMM. Additionally, SMM is not responsible for any related losses or liabilities resulting from unauthorized or illegal use of the views in this report.
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