China's HRC output edges up further, prices end decline

Hot-rolled coil (HRC) production among the 37 Chinese steelmakers regularly surveyed by Mysteel edged up slightly by another 17,400 tonnes on week to 3.04 million tonnes during July 2-8, after the previous week’s tiny uptick, the results of Mysteel's latest survey showed.

The average capacity utilization rate for strip mills among the surveyed 37 makers rose by a tiny 0.44 percentage point on week to 77.67% during the survey week, while their operation rate remained unchanged for two weeks at 81.25%, according to the survey results. 

The small rebound was mainly caused by certain rolling lines at mills in North China resuming operations, Mysteel Global learned. However, room for any further increase in HRC output will be very limited, industry sources said. Many integrated mills are now suffering losses on their finished steel sales, as elevated input costs and a lukewarm steel market keep squeezing profit margins. This points to more mills halting production for "maintenance" in the near term, according to market feedback.

However, the likelihood of operations being constrained in the weeks ahead lifted market sentiment late last week. On Friday, the most-traded HRC contract for October delivery on the Shanghai Futures Exchange closed at Yuan 3,291/t, higher by Yuan 13/t from the settlement price one week earlier, the exchange's data showed.

The same day, Mysteel assessed the national spot price of Q235B 4.75mm HRC at Yuan 3,320/tonne ($490/t) including the 13% VAT, inching up by Yuan 5/t on week and snapping up a five-week decline.

Meanwhile, on Friday Baosteel had announced it was lifting the prices of all its products including HRC for domestic sales in August by Yuan 50/t, as reported. Hot coil prices have now fallen by about Yuan 150/t since May and against this backdrop, market watchers say Baosteel has maintained its price increase to encourage a bottoming of the domestic market.

"While an improvement in supply-demand conditions is essential for a recovery in steel prices, market participants believe it is also important for mills to demonstrate their commitment to maintaining prices," one source observed.

Yet despite these signs, the hot coil market is still strained by relatively weak domestic demand and dull HRC export demand. Both of which were further impacted by recent heavy rains and the arrival of Typhoon Bavi in East China over the past weekend. Hot coil demand for manufacturing, construction and other applications could be further cooled as steel end-users recover from the deluge. 

By July 9, HRC stocks in the 194 commercial warehouses nationwide that Mysteel monitors had mounted by 4,500 tonnes or 0.1% on week to reach 4.68 million tonnes, Mysteel Global noted.

In contrast, HRC inventories held by the 37 sampled mills declined by 11,400 tonnes or 1.4% to 791,900 tonnes as of July 9.

Overall, the current hot coil market remains weakly balanced, a Shanghai-based ferrous analyst commented, with hot coil prices expected to remain rangebound in the near term.

Source:Mysteel Global