China: Ferrous commodities recover amid pre-stocking dynamics

Horizon Insights: After last week's weak trends, ferrous commodities saw a slight recovery, driven by valuations as futures dropped below their lower bounds. Iron ore performed better as steel mills increased pre-stocking after price declines.

Market sentiment was boosted by two factors: 1) an article by China Real Estate News, reaffirming the real estate sector's role in stabilising the economy, and 2) news that NDRC will hold a press conference on 19 November.

Additionally, Shanxi Jianglong announced plans to bring three construction steel production lines into maintenance, affecting 10,000 tonnes day of output, with a potential shift to HRC production.

Fundamentally, attention is on the HRC supply-demand balance as production is set to rise, which could impact production margins. If margins remain stable, raw materials may shift to winter pre-stocking. Shandong's recent shutdown of coking units, affecting 0.185 mnt of output, will have a limited impact on coke supply this year, as further capacity retirements are planned through 2025. The shutdowns and strong steel mill margins could encourage winter pre-stocking and stabilise coke prices after recent cuts, with coke prices at CNY 1,850/t.

However, high coking coal supply, due to increased domestic production and stable imports, limits price upside. With supply pressures, DCE coking coal futures will likely remain below spot prices, and only a supply reduction could drive bullish momentum during winter pre-stocking.

Note: This article has been written in accordance with a content exchange agreement between Horizon Insights and BigMint.