China's HRC output and prices edge higher

Hot-rolled coil (HRC) production among the 37 Chinese steelmakers regularly surveyed by Mysteel rose again during January 1-7 to register 3.06 million tonnes, though this was higher by only 10,000 tonnes or 0.33% on week, the latest survey results showed.

Steel mills maintained a steady supply of the flat steel last week as many have completed annual overhauls and resumed operations from the beginning of the new year.

As a result, the HRC rolling capacity utilization rate among the sampled mills inched up by 0.25 percentage points on week to average 78.05% during the survey week, while their average operational rate also crept 1.57 percentage points higher on week to 78.13%, the survey findings found.

Buoyed by positive macro-economic signals that China will continue to implement a moderately loose monetary policy this year, futures prices of major ferrous commodities including HRC experienced a rally in the middle of last week.

Riding the sentiment, the national price for Q235 4.75mm hot coils under Mysteel's assessment also bounced back to around Yuan 3,300/tonne ($473/t) level, topping Yuan 3,319/t including the 13% VAT last Thursday. As traders quickly rushed to purchase, HRC inventories at the 37 steel mills declined by 50,000 tonnes or 6% on week to sit at 773,200 tonnes on the same day, the survey results indicated.

In contrast, HRC stocks at the 194 commercial warehouses in the 55 Chinese cities Mysteel monitors mounted by 1.3% or 50,400 tonnes on week to 3.95 million tonnes by January 8. Some traders nursed their stocks, expecting prices to strengthen further in coming days, market sources noted. 

But the price rally didn't last long, however, as market sentiment cooled amid falling derivatives prices. On January 9, the most-traded HRC contract on the Shanghai Futures Exchange for next May delivery ended the daytime trading session at Yuan 3,294/t, down by Yuan 34/t or 1% from the prior day's settlement price, the bourse's data indicated. This was still higher by Yuan 37/t or 1.1% from the January 5 level, though.

Spot prices of hot coils also softened on January 9, with Mysteel assessing the national price of Q235 4.75mm HRC at Yuan 3,306/t, lower by Yuan 13/t or 0.4% from Thursday but still higher by Yuan 23/t or 0.7% from Monday's level.

This week as the market's focus shifts back to the weakness of HRC supply-demand fundamentals, hot coil prices are likely to continue coming under pressure, market watchers predicted.