Ferrous Metals May Rebound Slightly Next Week [SMM Steel Industry Chain Weekly Report]

Forecast for next week: Ferrous metals may have room for a slight rebound next week

This week, ferrous metals mostly retreated after rapid rises, with only coking coal and coke standing out, hitting the daily limit up at the open. Early in the week, the market was primarily driven by coking coal and coke leading the gains in ferrous metals. A coal mine accident occurred in Shanxi over the previous weekend, strengthening market expectations of tighter supply due to stricter subsequent regulatory oversight and increased production suspensions at mines. Ferrous metals rebounded on cost support. However, some mines quickly resumed production afterward, and combined with the prospect of a US-Iran deal being reached, crude oil declines dragged down iron ore prices, loosening cost support. Most products except coking coal and coke retreated from highs. In the latter half of the week, data on the five major steel products were released, showing continued inventory drawdowns but marginally weakening apparent demand, with supply-demand pressure rising somewhat. Spot market side, spot prices remained relatively firm this week, with the spot-futures price spread for hot-rolled coil and rebar both widening, providing shipment opportunities for spot-futures traders, while end-users continued to restock on demand at low prices.

In the short term, according to SMM survey tracking, daily average hot metal output edged up 2,300 mt WoW this week. Hot metal output is expected to continue rebounding going forward, but given the intensified safety inspections, the increase may fall short of expectations. The fifth round of coke price increases is about to be implemented, and combined with tighter supply expectations from the coal mine accident, cost support from coking coal and coke at the bottom remains in the short term. Steel side, the supply-demand imbalance is relatively limited in the short term, but off-season factors are deepening, and a weakening trend in fundamentals is foreseeable. Overall, the tightening coking coal supply caused by the mine incident persists in the short term, and cost-side support may provide room for a slight rebound in ferrous metals next week. Further price movements will depend on the impact of stricter safety inspections on raw material supply and the strength of end-use demand for finished steel products during the off-season.

Iron Ore: Insufficient Drivers — Iron Ore Prices to Continue Moving Sideways

Iron ore prices retreated after rapid rises this week, with the price center shifting downward again. Early in the week, prices of various ferrous products rebounded due to the coal mine gas explosion accident in Shanxi. As sentiment was released, iron ore price logic returned to fundamentals. Looking ahead to next week, as June begins, mine shipments will become more active, and global iron ore shipments are expected to continue increasing. Demand side, based on SMM blast furnace maintenance data estimates, hot metal production is expected to edge up slightly next week. The fifth round of coke price increases is expected to be implemented next week, squeezing steel mill profits. In addition, with the rainy season arriving and multiple regions across the country affected by heavy rainfall, end-use demand is expected to weaken, and steel mill procurement enthusiasm is likely to remain subdued. On the macro front, geopolitical conflicts remain volatile, and energy prices continue to provide bottom support for iron ore prices.Iron ore is expected to lack short-term drivers next week and move sideways following finished steel products.

Coke: Major Coke Producers Initiated the Fifth Round of Price Increases — Market May Continue to Hold Up Well Next Week

In terms of supply, coke producers faced rising costs, and with strong sales performance and some producers' inventory at low levels, coke fundamentals remained tight. Demand side, steel mills showed moderate enthusiasm for production, and some steel mills had low coke inventory levels, creating rigid demand for coke. However, the off-season impact on the end-user finished steel market intensified, steel prices performed weakly, and steel mills had limited acceptance of further coke price increases. Coking coal side, some mines in major producing areas of Shanxi recently resumed production gradually, but safety inspections remained strict, actual production was relatively small, the tight coking coal supply issue saw limited relief, and downstream rigid purchasing demand remained strong. Coking coal prices are likely to continue holding up well next week. Overall, coke fundamentals remained tight, with strong cost support. The coke market is likely to continue holding up well next week.

Steel Scrap: Supply-Demand Imbalance Not Yet Prominent, Short-Term Prices May Consolidate

In terms of supply, nationwide overall steel scrap arrivals increased slightly recently. Demand side, blast furnace steel mills saw little change in steel scrap addition ratios, while EAF steel mills experienced electric furnace upgrades and production shutdowns, with daily steel scrap consumption edging down slightly. Steel mills' steel scrap inventory days of coverage rose marginally WoW. Overall, fundamentals appeared slightly loose, with inventory showing a mild increase but not yet forming an imbalance. Short-term steel scrap prices are expected to mainly consolidate.

Rebar: Fundamentals Lack Catalysts, Raw Material Support Remains Strong

Rebar prices retreated after rapid rise this week, with the current nationwide average price at 3,216 yuan/mt, down 13 yuan/mt WoW from last Friday. Supply side, blast furnace steel mills recently saw declining production profitability, but overall remained in profitable territory, with production maintained at previous levels. Additionally, some mills underwent phased production resumptions, and production continued to increase. EAF steel mills faced steel scrap procurement issues, coupled with margin compression, with some mills reducing operating hours and production edging down, though production levels were still maintained at off-peak electricity rates. Demand side, heavy rainfall recently affected central and south China regions, slowing down end-user construction progress. Northern regions maintained a normal construction pace, with moderate demand performance. Inventory side, market sentiment was affected by a coal mine accident early in the week, increasing speculative purchasing demand. Mill inventory shifted from accumulation to reduction, while downstream construction sites purchased on an as-needed basis. Social inventory destocking slope slowed due to rainy weather in some regions. Looking ahead, construction steel fundamentals had few narratives to drive the market, mostly fluctuating around raw material price trends. In June, safety inspections may tighten on the policy front, providing some cost support. However, considering the early June farming season in the north and the plum rain season in the south, demand expectations were weak. Spot prices are expected to move sideways next week.

HRC: Cost Support Steady to Increasing, Prices Expected to Strengthen Next Week

HRC prices fluctuated downward this week, with the weekly average price edging down slightly and overall transactions decreasing marginally. In terms of supply, rolling line maintenance increased this week, and overall HRC production edged down. Demand side, HRC apparent demand declined WoW this week. The rainy season in south China hindered construction, real estate and manufacturing demand remained weak, end-user wait-and-see sentiment intensified, and purchasing as needed prevailed. Inventory side, SMM's survey of 86 warehouses nationwide (large sample) showed HRC social inventory at 4.4664 million mt this week, down 61,700 mt WoW, or -1.36% WoW. By region, inventory in the central-eastern and north China markets continued to decline, while south China and northeast China markets saw inventory buildup WoW. Cost side, the average ore price edged down slightly, the fourth round of coke price increases was implemented, and cost support for HRC strengthened marginally. Looking ahead, HRC consumption is expected to be further weighed down by the off-season, but cost support remains stable with a slight upward trend, and HRC prices may still strengthen next week. In summary, the most-traded HRC contract is expected to trade in the range of 3340-3440 next week.

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