[SMM Iron and Steel] Cold system Rolling Mill means reducing production and Hot Rolling fundamentals

Recently, the general concern of the market is focused on the recovery of manufacturing demand, so it is relatively ignored that the cold system is also the downstream terminal of hot rolling, and the increase or decrease of cold system output also affects the supply of hot rolled commercial materials in steel mills to a certain extent. As a result, SMM conducted a relevant investigation on the production of cold system products in the near future.

According to SMM, during the Lunar New year, in addition to the production of long-process steel mills, most of the rolling mills are in a state of shutdown, resulting in a decline in cold rolling output. In contrast, hot coil production has not stopped, production is increasing, so under the impact of the epidemic, hot rolled spot prices fell sharply, cold rolled spot prices are relatively more resistant to decline, promoting the cold and hot price gap continues to widen.

Figure 1: cold rolling output

Source: SMM collation

Then, with the gradual resumption of production in the cold rolling mill, the cold rolling output has also increased relatively, coupled with the terminal demand has not yet recovered, resulting in the cold rolling spot price also fell, cold and hot price difference narrowed than in the previous period.

Figure 2: trend of price difference between cold and heat

Source: SMM Steel

In fact, under the current price difference, the cold rolling production profit is still higher than the hot rolling production profit (according to SMM tracking, the current cold rolling production profit is 300-350 yuan / ton, while the hot rolling production profit is about 100-200 yuan / ton). Therefore, in the past, the steel mill will correspondingly increase the cold system production and reduce the release of hot rolled commercial material, and the cold system rolling mill will also produce at full load.

However, in the special circumstances of the epidemic, there is something unusual. According to SMM, the cold rolling mill not only did not increase the purchase of hot rolling raw materials, but reduced the procurement of hot rolling raw materials when demand resumed in March, with the intention of reducing the production of cold series products. The blast furnace plant also has no intention to increase the production of the cold system. According to feedback, the main reason is still attributed to the current automobile and home appliance terminal enterprises to return to work slowly, steel mills to receive orders is poor.

Cold rolling mill: due to the terminal order is still poor, there is a gradual willingness to reduce production, and the current financial pressure is great, the purchase of hot rolling raw materials has also been reduced accordingly.

Long process steel plant: the cold system product has the agreement quantity and the terminal is fixed, therefore the output has not had the substantial change, own to the hot rolling demand is also basically stable.

Generally speaking, in the case of the current price difference, even if the profit of the cold system product is considerable, but due to the terminal demand has not yet fully recovered, the long process steel plant has no willingness to increase production at present, and the cold system output is relatively stable. there is no substantial impact on the supply of hot rolled goods for the time being. On the other hand, the cold rolling mill is willing to reduce production, so instead of increasing the demand for hot rolling, it is possible to reduce the demand for hot rolling, adding to the current fundamentals of hot rolling. Overall, subsequent pressure relief on hot rolling fundamentals still depends on the recovery in manufacturing demand and the reduction in production by the steel mills themselves.