Ferrous Metal Market Trend with Expectation VS Reality

SHANGHAI, Feb 27 (SMＭ) - Macro front

The National Development and Reform Commission recently issued the Guiding Opinions on Coordinating Energy Conservation, Carbon Reduction and Recycling to Accelerate the Renovation and Transformation of Product Equipment in Key Areas.

The lower limit of the first home loan interest rate in Changzhou, Jiangsu Province has been reduced from 4.1% to 3.8% since February 25.

On February 24, the G20 Finance Ministers and Central Bank Governors Meeting was held in Bangalore, India.

Iron ore

Iron ore futures prices remained volatile last Friday, with the most-traded 2305 iron ore contract closing down 0.22% at 909.5 yuan/mt. Traders were less active in delivery while steel mills were wait-and-see, hence the market trading atmosphere was cold. The transaction prices of PB fines in Tangshan stood at 910-916 yuan, and that of PB fines in Tangshan were 925 yuan/mt, flat from last Thursday.

As the maintenance at Australian port ended and the effects of BHP railway accident faded, the shipments have increased. In addition, the rising iron ore prices encouraged shipments from other countries, which may lead to a slight increase in global shipment. In terms of demand, there are 4 blast furnaces in north-west China, and 1 blast furnace in north China planned to resume the production. Due to the recent high iron ore prices, steel mills mainly consumed in-plant inventory and purchase demand may increase this week. In the short term, the fundamentals will support nickel prices. Amid the recovering demand for finished products and the bullish outlook during the two sessions, the prices of iron ore will increase this week.

Coke

On February 24, the transaction prices of first-grade metallurgical CQD in Luliang, Shanxi were 2,890 yuan/mt (ex-factory), flat from the previous day.

A major coal accident occurred in a coal mine in Inner Mongolia, hence the supply of coking coal is expected to decrease and the downstream demand has increased. As such, the prices began to rise.

On the supply side, despite the declining profits, coke companies were still active in production under the expectations of price increase. Therefore, the supply of coke increased slightly. On the demand side, the sales of steel mills have improved significantly and there is no maintenance plan, hence the demand for coke increased.

Steel scrap

Steel scrap prices in China rose last week. East China: up 30-110 yuan/mt; central China: up 30-60 yuan/mt; south China: up 30-90 yuan/mt; south-west China: up 30-150 yuan/mt; north China: up 20-60 yuan/mt.

In the first half of last week, steel prices soared, boosting the market sentiment. Steel mills actively increased their purchase prices of scrap, but the steel scrap suppliers became less willing to ship, which lowered the actual arrivals at steel mills. In the second half of the week, some scrap suppliers shipped their goods with a fall in steel prices, and the scrap prices then fell slightly. In the short term, the steel mills will be more willing to produce amid the acceptable profits. The demand for steel scrap will grow, hence the scrap prices will move rangebound with some upward potential this week.

Rebar

Last Friday, rebar futures lost 0.87% and closed at 4,224 yuan/mt.

According to SMM research, the average operating rate of EAF mills rose 4.67 percentage points to 44.32% last week. Short-term profits of BF mills grew, but the steel mills still ramped up the production cautiously. The growth rate of total construction steel is slower than that in previous years. On the demand side, the surge in steel prices in the first half of the week boosted the market sentiment high. In the second half of the week, steel prices crashed, and the terminal and speculative demand decreased. The total demand continued to pick up week-on-week, but the growth rate began to shrink.

HRC

HRC futures prices fluctuated with occasional falls last Friday, down 0.30%. Spot transactions weakened significantly affected by the weak and turbulent futures market, and the wait-and-see sentiment among terminal companies has intensified. Speculative demand from traders has also dropped.

HRC output was stable WoW as the impact of maintenance weakened. On the demand side, steel prices rose rapidly during the week, and terminal companies slowed down their purchases in fear of a further rise in the prices. Speculative transactions were significantly more active than transactions from terminal sectors. Last week, the social inventory of HRC across 69 warehouses across China was 4.73 million mt, up 36,500 mt or 0.78% WoW. Demand in south China and east China picked up faster than that in north China. Some steel mills in north China will undergo maintenance this week, and the weekly output of HRC may drop slightly. On the demand side, high prices will curb downstream procurement to a certain extent, but the market is optimistic about the mid-term demand. With the opening of Two Sessions this week, the vigorous market sentiment is expected to push up the HRC prices.