SMM Daily Comments of Ferrous Metals Market

SHANGHAI, Feb 22 (SMM) -

Macro

China

The momentum of construction projects is in full swing, and investment in the transportation sector is accelerating

Local fiscal "books" in January reflect a stable start to the economy

Overseas

IMF says Asian central banks may need to raise interest rates further

Raw materials

Iron ore

Iron ore futures fluctuated at high levels yesterday, and the most-traded I2305 contract closed at 919 yuan/mt up 3.43%. The overall transactions were acceptable. Steel mills purchased on rigid demand, pushing up the spot trading. Traded price of PB fines in Shandong moved between 913-915 yuan/mt, up 8-20 yuan/mt from the previous trading day, and that of PB fines in Tangshan was 925-927 yuan/mt, up 18-22 yuan/mt.

At present, the prices of iron ore are still affected by the macro and news factors. The supply remains tight, and the pig iron output also grows slowly, thus the supply and demand relationship has not changed much. Driven by the rebound in downstream demand, the market sentiment was relatively optimistic, and the purchases of raw materials increased. However, the high in-plant inventory of finished products held by steel mills will greatly suppress the mills’ production enthusiasm in the short term. Besides, the mills’ raw materials procurement will also be dragged down by the rising iron ore prices. Iron ore prices are expected to move rangebound with some upward potential.

Coke

On February 21, the traded price of quasi-first grade metallurgical coke (coke dry quenching) in Lvliang city, Shanxi province was 2,890 yuan/mt (ex-factory), flat from the previous trading day.

Coking coal supply rose as most of the coal mines maintained normal operation, but downstream enterprises generally purchased on demand. The traders also held a wait-and-see attitude and were less willing to buy coking coal. The situation pushed up the coking coal inventory carried by some coal mines and weighed on the quotes offered by some mines which bear shipment pressure.

Coke output increased slightly since the profit margins of coke companies grew. Some coke companies got a relatively high in-plant coke inventory, but the overall inventory was still at a low level. Some coke enterprises were reluctant to sell.
On the demand side, steel prices continued to rise, pushing up the steel mills’ profit margins. Accordingly, the daily coke consumption by steel mills rose. But most steel mills which carried high in-plant coke inventory purchased cautiously.

Steel scrap

On January 21, the prices of steel scrap across the country increased. Among them, the prices in east China increased 30-50 yuan/mt; that in Yunnan dipped 20-30 yuan/mt; that in central China rose 50 yuan/mt; that in south China and north China remained stable. It is certainty that the supply and demand relationship is improving.

On the supply side, the rising prices of steel scrap made traders cautious in delivering, and thus it was hard for steel mills to pick up goods in low prices. On the demand side, according to SMM research, the operating rates of EAF steel mills continued to rise 4.67 percentage points to 44.3% as the sales improved. However, the insufficient steel scrap supply caused most enterprises to fail to increase the production. In the short term, the prices of steel scrap may rise further amid the imbalance between the supply and demand.

Finished products

Rebar

The rebar futures fluctuated at a high level yesterday, with an increase of 2.09% throughout the day.

On the supply side, according to SMM statistics, the operating rates of domestic EAF steel mills continued to rise this week amid rising spot prices. At the same time, the tight supply of steel scrap in some areas has eased slightly, causing some steel mills to increase the production. As such, the total output of rebar continued to rise this week. On the demand side, the strong market drove up the spot prices. The speculative demand was strong and terminal demand improved.

HRC

Affected by overseas bullish outlook on iron ore prices in the second quarter, HRC futures prices rose strongly, with an increase of 1.39%. In the spot market, the overall transactions were acceptable despite the decline. Moreover, the traders were generally bullish about the market, and some traders in the north China were reluctant to sell. To sum up, the prices of plain-carbon rolled steel in Qian’an has risen by 60 yuan/mt, which provided cost support for HRC prices.

In terms of fundamentals, the supply of HRC is expected to be stable this week, with a slight reduction in the follow-up stage amid the stable recovery of demand. In the follow-up stage, with the gradual recovery of terminal demand and the continuous stimulation of strong domestic expectations, short-term HRC prices will continue to increase.