Sentiment Recovery vs. Weakening End-Use Demand: Ferrous Metals Continue to Move Sideways [SMM Steel Industry Chain Weekly Report]

Forecast for next week: Sentiment recovery vs. weakening end-use demand; ferrous metals to continue moving sideways

Ferrous metals prices stabilized and rebounded this week, with finished steel outperforming raw materials. Early in the week, market expectations for the lifting of the SSF ban fell through, and with most steel mills still loss-making, procurement favored medium- and low-grade ore. Medium-grade ore inventories, especially delivery brands, dropped sharply, providing support to futures. Mid-week, the US midterm elections concluded, and the market expected the Middle East conflict to enter its final phase. Post-war reconstruction expectations boosted steel exports, while the possibility of easing export tariffs also emerged, helping repair market sentiment. Additionally, ferrous metals valuations were generally low, and funds from the earlier "long energy/chemicals, short ferrous" trade unwound in a concentrated manner, with some capital flowing into ferrous metals, driving a strong rebound across futures. From a fundamental perspective, inventories of major steel products continued to destock this week, with total rebar inventory down notably YoY. Fundamentals were relatively healthy, and spot prices edged up in tandem with futures.

Looking ahead to next week, raw material trends may diverge: coking coal prices slid earlier, weakening cost support for coke and leaving room for price concessions. However, iron ore medium-grade inventories remain low in the short term, supporting ore prices. Coupled with positive sentiment, the price center may edge up, still providing cost support for finished steel. That said, a widespread cold wave is expected across the country next week, posing a clear risk of declining end-use demand. In addition, after two months of concentrated purchasing, overseas buying activity may pull back from earlier levels, and steel exports may weaken MoM, increasing fundamental pressure on finished steel. Meanwhile, November is a quiet period for macro policy.On balance, finished steel prices are expected to lack upward momentum next week and may continue to move sideways, though the higher price base this week could lift the average price level.

Iron ore: Sentiment recovers; iron ore prices edge up

Early in the week, global iron ore shipments edged up WoW, but port arrivals fell sharply by 15.73% WoW. Combined with the failed expectations for lifting the SSF ban and a sharp drop in mainstream medium-grade inventories, ore prices found support. Mid-week, the US midterm elections concluded, and funds from the earlier "long energy/chemicals, short ferrous" trade unwound in a concentrated manner, repairing futures sentiment and driving a strong rebound in iron ore prices. The most-traded DCE iron ore contract hit a high of 694.5 yuan/mt. However, SMM survey showed that most steel mills remained loss-making and purchased as needed. SMM 35-port inventories rose by 1.08 million mt MoM, leaving the oversupply pattern unchanged and capping the rebound in iron ore prices.
Looking ahead to next week, blast furnaces under temporary maintenance are expected to resume production gradually. The impact of blast furnace maintenance on hot metal is expected to narrow by 13,300 mt WoW. SMM estimates hot metal production at 2.3665 million mt on November 11, up 9,200 mt WoW. The modest recovery in hot metal provides marginal support for raw material demand. On the cost side, expectations for a third round of coke price cuts are rising. If implemented, steel mill losses would narrow and negative feedback pressure would ease, with relatively positive market sentiment supporting ore prices. Coupled with this week's higher price base and weakening bearish momentum, ore prices are expected to move sideways next week, with the price center edging up. However, attention should be paid to the risk of stricter environmental protection-related controls in Handan during the heating season starting November 15, as well as periodic disruptions from long-term contract negotiation news.

Coke: Coke spot prices may consolidate on a subdued note next week; third round of price cuts expected

On the supply side, most coke producers remained loss-making and increasingly cut production voluntarily. However, coke producers previously halted by environmental protection-related controls resumed production gradually. Production cuts and resumptions offset each other, leaving overall supply without significant contraction. On the demand side, heating season environmental protection-driven production restrictions in November, combined with finished steel entering the seasonal off-season, led to more blast furnace maintenance at steel mills. Downward pressure on hot metal production intensified, and steel mill profitability recovery remained weak. Most steel mills purchased coke as needed, with limited willingness to restock proactively. On the coking coal side, the direction of mine production resumptions is clear, but actual increments fell short of expectations. Safety inspections, capacity controls, and geological conditions constrained production release. On the demand side, hot metal at steel mills and operating rates at coke producers weakened in tandem, and downstream purchasing was cautious. However, overall inventories upstream and downstream remained low, and with potential winter stockpiling restocking expectations, downside room is limited. Coking coal spot prices may consolidate on a subdued note next week, with prices drifting lower.On balance, coke producers' production cuts provide limited price support and are insufficient to offset weakening downstream demand and steel mills' push for lower prices. Coke spot prices may consolidate on a subdued note next week, with expectations for a third round of price cuts.

Steel scrap: Supply-demand weakness persists; prices likely to remain under pressure

On the supply side, temperatures dropped in north China, significantly worsening outdoor dismantling conditions. Scrap output from building demolition contracted, while operations in south China remained largely normal. Overall scrap supply showed seasonal contraction. On the demand side, blast furnace steel mills showed limited willingness to produce amid profit pressure and weakening demand, with some blast furnace resumptions possibly delayed. Meanwhile, environmental protection-driven production restrictions in north China may tighten further, and with more blast furnace maintenance approaching year-end, scrap procurement demand at blast furnace mills may continue to decline. EAF steel mills can still maintain thin margins, mostly operating at flat-rate electricity production levels, keeping scrap demand relatively stable.On balance, the scrap market remains in a supply-demand weak equilibrium. The demand off-season and steel mills' push for lower prices will likely continue to weigh on scrap prices.

Rebar: Supply-demand remains in weak balance; spot prices to consolidate

Rebar prices weakened first and then strengthened this week. Mid-week, futures broke below the 3,000-point level, while spot prices showed strong resilience with relatively small fluctuations. On the supply side, blast furnace steel mills continued to be profit-driven. Although overall margins improved marginally, the improvement was limited, and production largely held at previous levels. Some steel mills in east China increased production, mainly for export order schedules, while domestic trade supply changed little. Steel scrap prices continued to slide, providing room for EAF steel mills' per-ton margins. Most electric furnace mills can currently maintain thin profits at flat-rate electricity production levels, and further increases in operating hours are unlikely for profit reasons. On the demand side, performance diverged between north and south. North-east China has fully entered the heating season, with most construction sites halted. As weather turns colder, demand in north China will continue to weaken. Weather in south China remains suitable, and construction conditions are good. However, given the challenging funding situation at infrastructure and real estate downstream enterprises, limited new projects at year-end, and weak willingness to rush to meet deadlines, procurement is mostly low-price, as-needed. On the inventory side, total construction steel inventories continued to destock, but the pace slowed further.Looking ahead, most steel mills are maintaining construction steel production at marginal profit maximization levels, with relatively limited room to increase or cut production. Fundamentals remain in weak balance, offering little direct price driver. Prices will mostly follow raw material fluctuations, and short-term prices are expected to consolidate.

HRC: Export demand expectations improve; HRC prices likely to continue rebounding next week

HRC prices weakened first and then strengthened this week, with prices recovering. Gains were particularly notable in the second half of the week, and overall trading sentiment improved from early in the week. On the supply side, hot rolling line maintenance increased this week, and overall HRC production declined. On the demand side, apparent demand for HRC weakened in tandem, downstream orders were soft, and inventories destocked slowly on as-needed demand. On the inventory side, SMM statistics showed HRC social inventory at 86 warehouses nationwide (large sample) at 4.7362 million mt this week, down 93,400 mt WoW, or -1.93% WoW. By region, all regions destocked except east China and north-east China, which saw slight inventory buildup. On the cost side, coke prices held steady this week, while iron ore prices rose slightly, keeping HRC cost support intact. Looking ahead, coke prices are expected to decline, while iron ore prices will likely consolidate, weakening HRC cost support. However, HRC supply-demand imbalance is easing, and with the potential removal of tariffs after the US Congress changed hands, export demand expectations are improving. HRC prices are likely to continue rebounding.In summary, the most-traded HRC contract is expected to trade in the 3,170-3,250 range next week, drifting higher.

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