📅 2026-10-08 · HRC · Single-name brief Legacy coverage

This report is provided by MacroTerms.com

Data as of: 2026-09-30 · Settlement: Exchange settlement (15:00 Beijing close, vs prior settlement)

SHFE Hot-Rolled Coil Main Continuous (SHFE.HC) Deep Analysis Report | Bearish: Decline on Reduced Open Interest and Inventory Pressure | 2026-10-08

This report provides a bearish directional assessment for the SHFE Hot-Rolled Coil Main Continuous (HC2701). The core driver is that the price has broken below a key support level accompanied by a decline on reduced open interest, indicating that longs are actively exiting, while inventory remains at a five-year high for the same period, suppressing prices. Technically, the price is near the lower band of the 20-day channel, with pivot support S1 under pressure. Fundamentally, inventory pressure and insufficient processing margins constitute the main bearish factors. The directional invalidation condition is a daily close back above 3287.67 (R1) or holding above 3300 for two consecutive days.

I. Core Conclusions & Directional Bias

This report issues an explicitly bearish directional call on SHFE Hot-Rolled Coil main continuous (HC2701). The core thesis rests on three pillars: First, technical breakdown—[10-08 settlement] at 3249 sits below pivot S1 at 3266.67 and near the 20-day channel lower bound at 3270, confirming a short-term downtrend. Second, fund flows show declining open interest on falling prices—main nominal positioning decreased by CNY 435 million, indicating long liquidation rather than aggressive short selling; while downside momentum is waning, the trend remains intact. Third, fundamental inventory pressure is significant—inventory levels are elevated versus the five-year seasonal range, capping price recovery potential.

The invalidation condition is set as follows: if the daily close reclaims R1 at 3287.67 or holds above 3300 for two consecutive sessions, the bearish thesis fails and shifts to neutral observation. In the current environment, short covering may trigger a near-term bounce, but absent fundamental support, the overall stance remains bearish.

II. Price Action & Technical Analysis

From a price action perspective, [10-08 settlement] at 3249 declined 1.22% from the prior session's settlement of 3282, breaking below pivot S1 at 3266.67 and trading near the 20-day channel lower bound at 3270. The 5-day return is -0.76% and the 20-day return is -3.36%, indicating both short-term and medium-term trends are downward. ATR14 stands at 25.71 (0.79%), reflecting substantial intraday range, while RV20 is 7.8%, suggesting a recent uptick in realized volatility.

Technically, price has broken below pivot P at 3280.33 and tested support at S1 3266.67. A decisive break below S1 could target the 20-day low at 3270. On the weekly chart, the most recent completed week (2026-09-28 to 2026-09-30) closed at 3274 with a weekly change of -0.73%; no settled daily bars exist for the current week, so weekly conclusions reference only completed weeks. Price is currently near the 20-day channel lower bound; a sustained break below 3270 could open further downside space.

In the night session, [10-08 night session] opened at 3264, reached a high of 3265, a low of 3238, and closed at 3242, confirming continued bearish momentum. The overall technical picture is bearish, with key resistance at R1 3287.67 and support at S1 3266.67 and the 20-day low at 3270.

III. Supply-Demand Balance & Fundamental Drivers

On the fundamental side, inventory pressure is the primary bearish driver. Elevated inventory versus the five-year seasonal range signals relative oversupply or insufficient demand. While specific inventory figures are not directly provided, the inventory overhang exerts downward pressure on prices. Regarding processing margins, although direct data is unavailable, falling prices may compress mill profitability and affect production willingness.

Macro transmission: the ferrous complex is heavily influenced by macroeconomic expectations. The upcoming week's key calendar shows CPI and PPI data releases on October 14, which could impact ferrous sentiment. If data disappoints, ferrous prices may face further pressure. Additionally, the US Dollar Index DXY at 102.14 and the 10Y US Treasury yield at 5.23% represent a high-rate environment that may suppress industrial demand.

From a supply-demand balance perspective, elevated inventory reflects ample supply, while demand may be weakening amid macroeconomic slowdown. Insufficient processing margins may limit mills' willingness to cut production, exacerbating supply pressure. The overall fundamental backdrop is bearish, with inventory and macro expectations jointly driving the downside.

IV. Positioning Structure & Fund Flows

Positioning structure shows the top 20 seats hold a net long of 45,201 contracts (daily change +658 lots), yet main nominal positioning decreased by CNY 435 million, indicating active long liquidation. The characteristic of declining open interest on falling prices is evident—open interest shrinks during the decline, signaling long unwinding rather than aggressive short initiation.

Regarding COT weekly changes and price divergence: although direct COT data is unavailable, the simultaneous decline in main positioning and price suggests weakening long conviction. Comparing implied versus realized volatility, RV20 is 7.8% and ATR14 is 25.71; rising volatility may reflect increased market uncertainty.

On fund flows, the CNY 435 million decrease in main nominal positioning signals capital outflow. Net long holdings increased by 658 lots, but overall position size contracted, indicating cautious longs. The positioning structure is bearish, and capital outflow may exacerbate downward price pressure.

V. Cross-Asset Relative Value & Global vs. China Markets

Cross-asset relative value: the copper-gold ratio is 1.58, at the 96.83% 1-year percentile and 56.61% 3-year percentile, showing copper relatively strong versus gold, potentially reflecting growth expectations. The oil-gold ratio is 0.022, at the 92.06% 1-year percentile and 47.88% 3-year percentile, with crude relatively strong versus gold. The gold-silver ratio is 69.95, at the 80.16% 1-year percentile and 26.72% 3-year percentile, indicating gold relatively strong versus silver.

On international versus domestic market spreads: as HRC is a China-specific contract, onshore-offshore premium/discount warrants attention. Although direct premium data is unavailable, the DXY at 102.14 may affect import costs. The elevated copper-gold ratio may reflect global growth expectations, which would be positive for ferrous demand, but current inventory pressure may offset this effect.

Overall cross-asset relative value shows copper and crude relatively strong versus gold, potentially signaling economic recovery expectations. However, HRC's own inventory pressure and capital outflow constitute the primary bearish factors, and cross-asset signals provide limited positive offset.

VI. Historical Statistics & Seasonality

Based on approximately 12 years of historical data, using October 8 as the starting point and tracking the subsequent 20 trading days, the HRC main continuous (HC2701) exhibits a distinctly bearish seasonal pattern. The statistical sample shows an average return of -0.81% and a median decline of -0.91% over this window. Of the 12-year sample, only 3 years recorded positive returns—a 25% win rate—while 75% resulted in declines, giving the seasonal short a notably high historical hit rate. Historical extremes: 2016 was the best performer at +27.88%, while 2021 was the worst at -21.4%. Current price sits near the 20-day channel lower bound; combined with seasonal statistics showing a high probability of decline and a median drop near -1%, this provides historical statistical support for the current bearish strategy. Although the sample size is limited, the seasonal pattern resonates with the current technical breakdown and fund-driven decline, further confirming the persistence of the short-term downtrend.

VII. Scenario Analysis

Base Case (60% probability): Price extends the bearish trend. Trigger: daily close decisively breaks below S1 at 3266.67 and fails to hold above the 20-day low at 3270. Target levels: 3234 (1:1.5 risk-reward) and 3223 (1:1.9 risk-reward). Recommendation: maintain short positions; consider adding near 3274 on any bounce. Stop-loss placed above 3300.71. If the daily close reclaims R1 at 3287.67 or holds above 3300 for two consecutive sessions, the bearish thesis fails and shifts to neutral observation.

Bullish Scenario (20% probability): Oversold bounce occurs. Trigger: daily close reclaims R1 at 3287.67 or holds above 3300 for two consecutive sessions, accompanied by significantly elevated volume. Target: 3300 and 3315 (prior high). Recommendation: suspend short positions; if breakout is confirmed, initiate a light long with stop-loss below 3287.67, targeting the prior high at 3315.

Bearish Acceleration Scenario (20% probability): Price accelerates lower. Trigger: daily close breaks below the 20-day low at 3270 with continued open interest reduction, signaling panic long liquidation. Target: 3223 and 3200. Recommendation: maintain short positions; add below 3270 with stop-loss above 3300.71, targeting 3223 and 3200.

VIII. Trading Strategies & Risk Management

Established strategies to execute strictly:

Short Entry: 3274 | Stop-Loss: 3300.71 | Target: 3234 (horizon 1–5 days, R:R 1:1.5)
Short Entry: 3274 | Stop-Loss: 3300.71 | Target: 3223 (horizon 1–2 weeks, R:R 1:1.9)

Stop-loss distance is 26.71 points, equal to 1.02× ATR (ATR14: 26.071). Contract multiplier is 10, with per-lot risk of CNY 297 (including fees and slippage). Single-trade risk budget of CNY 6,693 corresponds to a reference maximum position size of 22 lots. Stop-loss is set at 3300.71 because this level sits above the prior high of 3300; a break above 3300 would confirm the bearish thesis has failed, so the stop is placed here to avoid false-breakout risk. Position sizing adheres to the single-trade risk budget cap, ensuring no single loss exceeds 1% of total capital.

Position adjustment rules: If price breaks below 3270 with continued open interest reduction, add to the short, but total position must not exceed the reference cap of 22 lots. If price rebounds to approximately 3274 without triggering the stop-loss, consider adding, but recalculate risk parameters before doing so.

Week 9: This Week's Data Calendar

Beijing Time, October 14, 09:30 — U.S. CPI y/y data released October 13, 21:30. Consensus and prior values not provided; impact on ferrous, non-ferrous, and chemicals sectors. PPI y/y data also released at 09:30 the same day, with consensus and prior values not provided; likewise impacts ferrous, non-ferrous, and chemicals sectors. Key focus on whether data beats expectations; if actual prints exceed the ± threshold, sentiment in the ferrous complex could be further pressured.

This report is generated automatically from public quantitative and macro data for research and market tracking only. It does not constitute any investment advice.

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