Forecast for Next Week: Prices Are Expected to Hold Up Well Overall; Key Focus to Shift to the Pace of Coking Coal Supply Recovery and the Elasticity of Finished Steel Demand Release
This week, the ferrous metals market narrative was dominated by news on the coking coal supply side. Amid tighter safety inspections and disruptions from raw coal production cuts, the tight coking coal supply-demand landscape continued to intensify, boosting market sentiment. Coking coal and coke, together with finished steel prices, rose in tandem, and futures broke above the previous high. Early in the week, intensified safety inspections in Shanxi, coupled with raw coal production cuts, strengthened expectations of a contraction in coking coal supply. Steel mills in Shanxi, Henan, and other regions actively increased coke prices due to low coke inventory, and the cost-push logic was quickly realized, with spot prices posting notable gains. Mid-week, after a sharp rise in spot prices, downstream procurement turned more cautious; transactions of high-priced cargoes were hindered, and bottom prices loosened slightly. In the latter part of the week, although production and sales data for the five major steel products showed a pullback in apparent demand for rebar and HRC, and the fundamentals of finished steel did not improve materially, the second round of coke price increases was fully implemented and the third round was launched shortly after. Meanwhile, coking coal futures hit a new high for the year, and ferrous metals continued to rise, driven by the strong performance of coking coal and coke. In the spot market, demand was in a transition between the off-season and peak season; actual demand recovery from end-use projects was slow, with purchases mainly focused on just-in-time procurement at low prices. However, the recovery in sentiment this week also stimulated the release of some speculative demand.
In the short term, according to SMM survey data, hot metal production is expected to increase next week. However, as coke prices have risen consecutively, steel mill profits narrowed, and coke tightness still existed in some regions, limiting the momentum for blast furnace production resumptions. In addition, after a surge in port arrivals of iron ore, port inventory pressure rebounded, leaving ore prices under pressure and consolidating in the short term. For coke, the third round of price increases has already been launched, and the market has expectations for a fourth round, with cost support still strong. For steel, demand remained in the transition period between the off-season and peak season, with divergence across products continuing: long products saw destocking while sheets & plates saw inventory buildup. Apparent demand showed no trend-like improvement, and fundamentals lacked upward drivers.Overall, ferrous metals prices in the short term were still driven by news around coking coal and coke. The tight coking coal supply-demand landscape is unlikely to ease quickly under the normalization of safety inspections. Prices are expected to hold up well overall next week, with key focus on the pace of coking coal supply recovery and the elasticity of finished steel demand release.
Iron Ore: Bulls and Bears Remained Locked in a Stalemate; Prices Are Expected to Continue Testing Higher and Consolidate on a Strong Note Next Week
This week, iron ore prices consolidated on a strong note. The most-traded I2701 contract hit an intraday high of 725 yuan/mt, up about 1.3%–2.0% on the week (based on Friday’s close), marking a second consecutive weekly gain, though prices still stayed in the year-to-date low range of 700–730 yuan/mt. This round of gains was driven by a resonance of multiple factors rather than a single catalyst. First, labor-management negotiations at BHP’s Port Hedland fell into a stalemate (on August 25, the union rejected the wage proposal, involving about 450 port workers; the next round of talks is scheduled for September 8), creating expectations of supply tightens in sentiment. Meanwhile, freight rates on major shipping routes remained fluctuating at highs amid war-related disruptions, further strengthening bottom support for prices. Second, as the traditional September-October peak season approached, steel mills held expectations for a September restocking rally, lifting market sentiment. Third, coking coal and coke prices rose sharply this week, driving finished steel prices higher; as a raw material, iron ore passively followed the rally, also providing some boost to ore prices. Overall, this rebound in iron ore was strongly supported by sentiment and the cost side, but prices remained at year-to-date lows. Subsequent moves will depend on the pace of end-use demand release and the evolution of supply-side events.
Looking ahead to next week, the market may continue to consolidate on a strong note early in the week, supported by costs and driven by peak-season expectations. However, if finished steel apparent demand and hot metal production in the first week of September fail to show a meaningful rebound, futures are likely to retreat after rapid rise. In terms of supply, as the Simandou rainy season ends, shipments are expected to rise further; meanwhile, after entering September, the shipment midpoint of major mainstream mines is likely to edge higher, with incremental supply gradually materializing. Demand side, based on a comprehensive assessment of blast furnace maintenance and production resumptions, SMM expects next week’s daily average hot metal production to edge up MoM, but constrained by both tight coke supply and continued narrowing of steel mill profits, the room for hot metal growth is limited, and the actual increase may be below current market expectations. From a macro perspective, the US Fed rate-hike game has heated up; CME data show the probability of a 25-bp hike in September has risen to 41%, which may disrupt market sentiment and cap upside price elasticity. Overall, iron ore is supported in the short term by costs and underpinned by peak-season expectations, but with incremental supply gradually materializing, doubts over the strength of demand recovery, and rising macro uncertainty, upside room is limited, and it is expected to be dominated by drifting higher while probing resistance.
Coke: Cost Support Continues to Strengthen; The Coke Market Is Expected to Hold Up Well Next Week
In terms of supply, as coking coal prices continue to rise, coke production costs have kept climbing. Most independent coking plants remain mired in losses and have proactively stepped up production restrictions and maintenance, leading to a contraction in coke supply. As downstream purchasing enthusiasm rebounds, coke inventory at coking plants is being drawn down at a faster pace; supply is tight in some regions, and coking plants’ sentiment to hold back from selling is gradually strengthening. On the demand side, maintenance cycles at most steel mills have ended, blast furnaces are resuming production one after another, and the rebound in hot metal production has driven a MoM increase in rigid demand for coke. Some steel mills have low coke inventory and are restocking at higher prices. However, with weak profitability in finished steel, the recovery in steel mill profits is limited; therefore, steel mills are relatively cautious about accepting further coke price increases, and the coke–steel game has intensified. For coking coal, in major producing areas, safety inspections and controls have slowed the pace of mine resumptions, with operations resuming without a corresponding increase in production. The pattern of structural tightness in high-quality coking coal continues. In addition, the second round of coke price increases has been fully implemented, boosting market confidence, and in the short term the coking coal market may continue to hold up well. In summary, the probability of the coke market holding up well in the short term is relatively high. Driven by both cost support and improving downstream demand, the third round of coke price increases is about to be implemented. Going forward, key focus should be on steel mills’ acceptance and changes in end-user demand for finished steel.
Steel Scrap: Fundamentals Show a Trend of Continued Improvement; Short-Term Prices May Drift Higher
On the supply side, outdoor demolition, bulk-material recycling, and yard operating efficiency remain at low levels; coupled with tax-invoice issues constraining steel scrap circulation, the tradable volume of steel scrap resources is limited. Demand side, as the increase in coke prices was implemented, hot metal production costs at blast furnace steel mills rose, improving the cost-effectiveness of steel scrap. However, the market was still in the traditional transition period between the off-season and peak season for finished steel demand, and steel mills had limited production enthusiasm, making it difficult for scrap consumption to see a meaningful increase. EAF steel mills, as per-mt steel margins improved, slightly raised operating hours, and steel scrap usage increased. Overall, steel scrap fundamentals showed a trend of continued improvement, and steel scrap prices might drift higher. However, with finished steel demand not seeing a substantive improvement and steel mills lacking production momentum, incremental demand for steel scrap was limited, and there was still some constraint on upside room for prices.
Rebar: Coking Coal and Coke Strength Lifted Finished Steel; Supply-Demand Imbalance Eased
This week, rebar prices held up well, and rebar futures rose to near the previous high at their peak. Supply side, recently, steel mills in Shanxi and Henan faced coal shortages, and with production still in a loss-making phase, some producers continued to cut production loads or carried out temporary maintenance on rolling lines, easing pressure on the blast furnace supply side. Meanwhile, as the increase in steel scrap prices lagged the increase in spot cargo, EAF steel mill profitability improved significantly, with production margins turning slightly positive, and operating enthusiasm increased. Some producers raised operating hours, lifting the overall operating rate. Demand side, demand saw a phased release on Monday, but after mid-week, end-users were relatively cautious in purchasing, mostly purchasing as needed. In addition, typhoon weather affected east China, leaving some projects in a semi-stagnant state, so demand remained constrained. Inventory side, both mill inventory and social inventory declined this week. On the one hand, production fell; on the other hand, over last weekend, traders accelerated pick up goods, and some projects stocked up in advance. It was understood that the gap between steel mills’ physical inventory and financial inventory was relatively large; after locking in cargo, some traders had not yet picked up goods, mainly because downstream demand had not improved noticeably, and most resources were still piled up at mills. Going forward, attention should be paid to the actual drawdown of mill inventory. Overall, affected by tight supply of coking coal and coke, overall market sentiment was relatively positive. With supply reduced and demand in the transition between the off-season and peak season, although fundamentals lacked a clear driver, the imbalance was easing. Spot prices were expected to still have upside room next week.
Hot-Rolled Coil: Peak-Season Demand Has Yet to Materialize; Strong Cost Support; Hot-Rolled Coil Expected to Consolidate in Line With Costs Going Forward
This week, hot-rolled coil prices strengthened sharply from the previous week, and overall transactions improved. In terms of supply, the impact from maintenance on rolling lines increased WoW, and overall hot-rolled coil production declined. In terms of demand, apparent demand fell WoW. In terms of inventory, total hot-rolled coil inventory was +127,100 mt WoW, while mill inventory was -5,500 mt WoW. On the social inventory front, SMM statistics showed that this week, nationwide social inventory of HRC across 86 warehouses (large sample) totaled 4.6308 million 10kt, up 132,700 10kt WoW, up 2.95% WoW, and up 29.86% YoY on a calendar-year basis. By region, inventory declined only in the South China market, while all other regions saw inventory buildup, with the pace of buildup widening markedly. On the cost side, coking coal and coke rose strongly this week, and the second round of coke price increases was implemented, significantly strengthening cost support for HRC. Looking ahead, coke initiated a third round of price increases, and the market expects a fourth round to follow. Coupled with blast furnace resumptions, hot metal production is expected to rebound, with iron ore demand supporting prices, and cost-side support remaining strong. From a fundamentals perspective, HRC rolling lines are expected to gradually resume production, with production expected to rebound, but demand is expected to recover relatively slowly; inventory is expected to continue building, and fundamental pressure remains. HRC prices are expected to track cost-side moves next week, with the most-traded contract expected to trade in the 3,340-3,430 range.
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