SHANGHAI, Mar 5 (SMM) – Cold rolling mills in China have scaled back procurement of the raw material—hot-rolled steel, in preparation for production curtailments, as cash flow pressure is mounting on poor orders from end-users—automobiles and home appliances.

That is set to further dampen fundamentals of hot-rolled steel, which has also been hit by overall weakness in demand amid the COVID-19 epidemic outbreak.

Orders for cold-rolled steel have yet to pick up substantially when it comes to March, as the recovery of automobile and home appliance manufacturers in China progresses slowly amid lingering transport curbs and public health measures aimed at containing the outbreak of the epidemic.

Potential cold-rolled steel production cuts come despite decent profits. SMM calculations showed that profits on cold-rolled steel now stand at 300-350 yuan/mt, compared to 100-200 yuan/mt on hot-rolled steel.

On the backdrop of subdued demand, high profits did not prompt blast furnace steelmakers to step up production of cold-rolled steel, either. BF mills are maintaining stable cold-rolled steel production as they have contracts with traders and end-users.

Price spreads between cold and hot-rolled steel widened sharply in early February, as prices of hot-rolled steel plunged on oversupply as production of such material did not suspend during the Lunar New Year holiday. The decline in prices of cold-rolled steel was less significant as most of cold rolling mills were closed during the holiday. The price spreads narrowed later in the month, as cold rolling mills resumed production.

Source: SMM