HRC supply to continue to grow in January despite wider price spread with CRC

SHANGHAI, Dec 31 (SMM) – China’s production of hot-rolled coil are expected to continue to grow in January as the steel used to make cars and home appliances remains a stellar profit driver for Chinese steelmakers.

Thanks to firm spot prices, profits on HRC have been expanding to about 500 yuan/mt, while profits on cold-rolled coil now stand at 200-300 yuan/mt. As of December 30, HRC profits were 140 yuan/mt higher than rebar, which has seen spot prices on the decline.

This has encouraged some mills to shift production from rebar to HRC in December, and more mills will follow suit in January. SMM learned that Tangshan Steel and Handan Steel both plan to recover their output of HRC next month, which will increase 100,000 mt and 30,000 mt from December, respectively.

Price spreads between CRC and HRC, however, have widened, as improved orders boosted prices of HRC, after China earlier this month outlined measures to spur its economy and keep employment stable, including encouraging replacement of automobiles and home appliances and facilitating the scrappage and upgrading of cars.

Beijing’s measures keep steel mills optimistic about demand in automobiles and home appliances next year. Mills are keen to produce cold-rolled steel, and some plan to expand their cold-rolling capacity. Jilin Jianlong has recently commissioned its No. 2 galvanising line, with monthly production of 40,000 mt. Steel mills have yet to plan to shift their production from HRC to CRC, as HRC still sees higher profits than CRC.