Ferrous Metals May Consolidate at Highs in the Short Term [SMM Steel Industry Chain Weekly Report]

Forecast for Next Week: Ferrous Metals May Consolidate at Highs in the Short Term

This week, ferrous metals continued their rebound trend, with finished steel outperforming raw materials. Early in the week, the rally was mainly driven by raw materials, as uncertainties in the Middle East situation combined with market rumors of restricted Mongolian coal shipments boosted the coal sector, with other ferrous metals following suit. Mid-week, the General Office of the CPC Central Committee and the General Office of the State Council issued the "Opinions on Achieving Higher-Level and Higher-Quality Energy Conservation and Carbon Reduction," which covered the steel industry, strengthening market expectations for supply-side reforms. In the latter half of the week, data on the five major steel products were released, showing increases in both supply and demand with inventory drawdowns, and finished steel outperformed raw materials. Spot market side, with futures rising continuously, end-user purchasing enthusiasm increased somewhat. Mid-week, the spot-futures price spread narrowed, and there was bargain-hunting activity in both futures and spot markets.

In the short term, according to SMM survey tracking, daily average hot metal output rose 5,300 mt WoW this week. Hot metal output hovered at high levels in the short term. Current iron ore port inventory had not yet been released, bearish sentiment eased somewhat, and cost support remained neutral. Steel side, pre-Labour Day holiday stockpiling is expected next week, and steel remains in a pattern of strong supply and demand in the short term. Overall, current contradictions in ferrous metals are relatively small, with limited self-driven momentum. Occasional changes in macro or ex-China developments may cause fluctuations. In the short term, with moderate export order-taking performance, finished steel may continue to outperform raw materials, and ferrous metals overall are consolidating at highs.

Iron Ore: Macro Expectations vs. Weakening Fundamentals — Prices May Retreat from Highs

Iron ore prices held up well with a fluctuating trend this week, with macro factors still providing support. Fundamentally, weak supply and strong demand jointly drove ore prices to hold up well. However, port spot cargoes rose less than futures, with the average price of PB fines at Shandong ports rising only 12 yuan/mt. Looking ahead to next week, the April Politburo meeting is about to convene, and the market has certain expectations for related policies. However, from a fundamental perspective, the impact of the Australian cyclone has ended, and both iron ore shipments and port arrivals have upside room, with supply set to increase notably. Demand side, hot metal production has peaked, and pre-holiday stockpiling is nearing its end, with overall demand pulling back MoM. Against the backdrop of strong supply, weak demand, and diminishing support, iron ore prices are expected to show a trend of rising before pulling back next week.

Coke: Third Round of Price Increases Emerges — Prices May Be Generally Stable with Slight Rise Next Week

News side, major coke producers initiated a third round of coke price increases, expected to take effect at midnight on April 27. In terms of supply, per-mt coke profits at coke producers were moderate, production enthusiasm was moderate, and with sufficient orders and smooth shipments, coke producers' own coke inventory remained at low levels. Demand side, steel mills' coke arrivals improved recently. Meanwhile, steel mills' finished steel margins were moderate, stimulating production enthusiasm. Combined with the approaching Labour Day holiday, some steel mills had early stockpiling needs, creating certain restocking demand for coke. Coking coal: most mines maintained normal supply, downstream purchasing and restocking enthusiasm increased, prices of some coal grades rose, and market sentiment warmed somewhat. Transaction prices of most coal grades in online auctions edged up, boosting market confidence. In the short term, the coking coal market may be generally stable with slight rise. In summary, the coke supply-demand pattern remained in a tight balance stage. In the short term, the coke market may be generally stable with slight rise, with expectations for the third round of increases to materialize.

Steel Scrap: Pre-holiday Restocking Support; Prices May Hold Up Well Next Week

Supply side, bases showed moderate shipment enthusiasm this week, mostly adopting a low-inventory strategy of quick turnover. However, the nationwide tightness in tax invoices somewhat constrained steel scrap circulation and operational pace. Demand side, daily steel scrap consumption at blast furnace steel mills remained generally stable, while EAF steel mills were constrained by profitability, limiting production enthusiasm. This week, the operating rate of 50 major construction material-producing electric furnace steel mills nationwide was 41.4%, down 0.6% WoW. Looking ahead, with the Labour Day holiday approaching, the market still had rigid restocking demand, providing certain support for steel scrap prices. However, given the thin overall profits at steel mills and strict procurement cost controls, the upside of steel scrap price increases may also be somewhat limited.

Rebar: Strong Cost Support; Pre-holiday Stockpiling Demand Gradually Released

Rebar prices held up well this week, with the current nationwide average price at 3,182 yuan/mt, up 32 yuan/mt WoW. Supply side, some blast furnace mills recently arranged temporary rolling line maintenance due to profitability issues, and a few electric furnace mills slightly reduced operating hours due to scrap sourcing problems, leading to a decline in overall production this week. In addition, coiled rebar shortages emerged in multiple areas in central and northern regions recently, and some steel mills plan to reduce rebar output and shift to wire rod production. Furthermore, scheduled maintenance continued in east China, and production pressure may continue to slow down going forward. Demand side, construction progress in east China and south China slowed slightly due to weather, while other regions saw phased demand release, with overall transaction performance being moderate. Inventory side, some end-user pre-holiday stockpiling demand picked up, and total inventory destocking accelerated this week. It was learned that most steel mills were currently at a loss producing mid-range specifications, thus preferring to produce premium-priced specifications to improve overall profitability. This week, some steel mills continued to raise size-range surcharges to adjust in-plant production profitability. Looking ahead, raw material prices trended firm, providing strong cost support. Combined with industry fundamentals, the rebar fundamentals showed improvement. Pre-holiday stockpiling demand may see concentrated release next week. Therefore, rebar prices had bottom support, but the upside may be limited by the pace of demand release.

HRC: Recovering Transactions and Rapid Inventory Decline, Moving Sideways in the Short Term

HRC average prices strengthened this week, with overall transactions improving WoW. In terms of supply, rolling line maintenance edged up this week, and overall HRC production declined. Demand side, market demand performed optimistically this week, with a good overall trading atmosphere. Inventory side, SMM-tracked HRC social inventory stood at 5.0122 million mt this week, down 240,800 mt MoM, down 4.58% MoM. National social inventory drawdowns accelerated this week. By region, inventory drawdowns in northeast and north China were faster than in other markets, while the decline in east China also accelerated. Cost side, in the first half of the week, cost support was moderate, driven by uncertain overseas situations. In the second half of the week, upward momentum in raw material futures slowed down, and the pace of steel strengthening weakened in tandem. Looking ahead, production is expected to edge down slightly next week. Driven by pre-Labour Day holiday stockpiling, apparent demand is expected to continue recovering. The supply-demand structural imbalance for HRC is relatively small, but considering that current HRC prices are already at a relatively high level, overall market demand is not enough to support a significant price rally. Therefore, the most-traded HRC contract is expected to move sideways in the 3,320-3,430 range next week.

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