SHANGHAI, Apr 18 (SMM) – Hot-rolled coil prices are likely to gain support from higher demand in the short term as some downstream consumers chose to use hot-rolled coil as a substitute for medium plates due to wider price spreads, SMM believes.
Hot-rolled coil prices moved rangebound after the Chinese New Year holiday given pressure from inventories and the US-China trade conflicts. However, prices of medium plates remained firm due to production cuts.
Steel mills have cut output of medium plates given weak prices in recent years. Production limitation in the Handan area, where most major medium plate producers in the north are located, and the maintenance at mills including Guangdong Shaoguan Steel further lowered the output of medium plates.
We see demand for medium plates overshadow that for hot-rolled coil for now as demand in the machinery and shipbuilding industries were upbeat in the first quarter of this year. Sales of machinery products rose 30% year on year in the first quarter, with the March sales of excavators up 78%, according to data from China Construction Machinery Association (CCMA). Orders for new ships also saw sharp year-on-year surges in February and March. This drove up the demand for medium plates.
Price spreads between medium plates and hot-rolled coiled plates have widened to close to 300 yuan/mt currently. Given brisk demand across downstream industries, many consumers used flattened, thick hot-rolled coil to replace medium plates. This gave significant support to hot-rolled coil prices.
However, it is likely that the price spread would gradually shrink as growing profits prompt some steel mills to restart their production lines for medium plates.
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