In October, the price center for the "black commodities" complex (ferrous metals and related raw materials) shifted downward, with raw materials leading the decline, followed by finished steel products. The primary driver was a negative feedback loop originating from the cost side: the average daily hot metal output across 247 surveyed steel mills fell to approximately 2.33 million tonnes. Concurrently, an increase in coal imports from Mongolia and a narrowing supply gap for coking coal led to a reduction in the tax-inclusive cost of hot metal production in Jiangsu—down by about 140 yuan/tonne compared to the end of September—which pulled down the price center for finished steel. However, production cuts by steel mills eased supply pressure for finished products, and inventories of the five major steel categories continued to decline; consequently, the price drop for finished steel was less pronounced than that of raw materials.
Looking ahead to November, the price center for the black commodities complex is expected to drift slightly lower, with the overall outlook remaining bearish. Nevertheless, the downward trend may present structural opportunities. First, consider the coke-to-coking coal price ratio, which may follow an "initial rise followed by a decline" pattern. As the supply-demand gap narrows, coking coal prices are likely to fall; however, since near-term downward adjustments to coke prices may face resistance, coke is expected to remain relatively stronger, potentially causing the ratio to rise initially. Subsequently, if coking coal costs continue to decline, the profit-sharing dynamics between coke producers and steel mills will likely lead to one or two further rounds of price reductions for coke, causing the ratio to fall back. Second, watch for a decline in the rebar-to-iron ore price ratio. Currently, this ratio sits at a three-year high; should a restocking phase for raw materials begin, iron ore prices would likely show greater elasticity—and thus a stronger rebound—than finished steel prices.
The overall bearish outlook is primarily driven by two factors: the seasonal weakening of demand and a loosening of supply-demand conditions for raw materials. As the heating season begins in mid-November, construction projects will increasingly reach completion, leading to a seasonal decline in demand for construction materials. Simultaneously, supply-demand conditions for raw materials are easing: the average daily hot metal output across the 247 steel mills is projected to fall to 2.30–2.31 million tonnes in November—a further decrease of 20,000–30,000 tonnes from the October average—while domestic coal production is expected to increase by 10 million tonnes, and coal imports from Mongolia are anticipated to recover to a volume of 1,100–1,500 truckloads. Meanwhile, the macroeconomic landscape also lacks bullish catalysts. Although the Federal Reserve held rates steady in October, the probability of a hike in December remains as high as 80%. Until the current rate-hiking cycle nears its end, high interest rates will continue to weigh on risk assets. Domestically, achieving the annual GDP growth target of over 4.5% appears well within reach, making the introduction of large-scale incremental stimulus in the fourth quarter unlikely. Consequently, with steel demand softening, hot metal production declining, costs trending lower, and a lack of positive macroeconomic drivers, the supply-demand balance is expected to continue shifting toward a lower equilibrium.
Nevertheless, despite the prevailing bearish outlook, the decline in prices—coupled with the gradual absorption of pessimistic expectations—may create opportunities for a rebound, driven by potential discrepancies in demand forecasts and the prospect of raw material restocking. It should be noted, however, that the timing and magnitude of any such rebound remain uncertain; it would likely represent a corrective move within an ongoing downward trend. Two specific factors warrant attention:
1. The decline in demand for finished steel products may be slower than anticipated.
On one hand, the El Niño phenomenon suggests a high probability of warmer-than-average temperatures this winter, which could result in less disruption to construction activity in northern regions compared to previous years. On the other hand, there has been a marginal improvement in funding: new special-purpose bond issuance reached 620.4 billion yuan in September—exceeding the monthly target by 46.5%—with a significant surge in the final week of October (234.5 billion yuan). Given a transmission lag of approximately two months, these funds are expected to reach end-use projects by November. Against this backdrop, the likelihood of a year-end construction push has increased, potentially causing the decline in apparent demand for steel in November to be more gradual than the market’s seasonal expectations. If demand proves more resilient than expected, the destocking of rebar could continue; furthermore, with rebar inventories already 17.5% lower year-on-year, prices should receive a degree of support.
2. Seasonal restocking of raw materials may provide price support.
As prices fall to relatively low levels, the market’s pessimistic demand outlook has largely been priced in. Additionally, with hot metal production having retreated to around 2.3 million tonnes, the marginal pressure on the raw materials segment is set to ease. Meanwhile, steel mills have an urgent need to restock iron ore and coke ahead of the winter season. Raw material prices are likely to stabilize before those of finished steel products, which would help mitigate the downward pressure on costs—a key factor in the current negative feedback loop. Seasonally, in six of the past nine years, the average price of the primary iron ore futures contract during the second half of November was notably higher than in the first half. Supported further by firm ocean freight rates, there is an expectation of restocking toward the end of the month, which could help stabilize prices. However, as the production of molten iron remains on a downward trajectory, this restocking is more of a tactical adjustment in timing rather than a reversal of the broader trend; consequently, the potential for an iron ore price rebound remains limited.
Il tuo messaggio deve contenere da 20 a 3000 caratteri!
