It is expected that this week, there will be blast furnaces newly entering maintenance in north, east, central and south-west China, and the demand for imported iron ore will continue to contract. From the supply side, last week is the last one before the end of the 2nd quarter, and overseas shipments may increase significantly. However, considering that the shipment volume from Australia has dropped sharply due to heavy rain and port maintenance in early June, the arrivals of imports ores at Chinese ports are likely to drop this week. The constantly falling port inventory may give some support to the ore prices. Nonetheless, the ore prices will continue to show signs of falling this week.
The first round of coke price cuts by 300 yuan/mt has been accepted by the market, and the loss of coking enterprises has aggravated. However, due to the still difficult sales of steel, more blast furnaces are now under maintenance, and the steel mills began to control the arrivals of coke. The possibility of coke prices falling again this week is relatively high. After the first round of coke price cuts, the profit per tonne of coke dropped from 101 yuan/mt to -114 yuan/mt last week. The expanding losses of coking enterprises led to an increase in their willingness to reduce the production. Some coking enterprises are considering cut the production by 20%-30%. However, the profitability of steel mills is still at a low level, and the pressure of steel inventory is relatively high. As such, steel mills are actively forcing down the coke prices, while are less interest in purchasing. Coupled with the fact that the prices of most coal varieties have dropped by 150-300 yuan/mt, coke prices are likely to keep falling this week.
More steel mills are likely to carry out maintenance, which will significantly pull down the overall supply. Hence the fundamentals of steel will improve marginally. However, SMM believes that due to the off season, the end demand is not enough to support the sharp rebound in steel prices. It is expected that the short-term finished product prices will follow the cost side with downward potentials. In addition, since the current production reduction of steel mills is mostly focused on rebar, rebar prices are expected to outperform that of HRC.
Potential risks that may affect the price trend include but are not limited to - 1. International monetary policy; 2. Domestic industrial policy; 3. Re-surging COVID.
Post time: Jul-08-2022