SHANGHAI, Jul 10 (SMM) – China’s output of hot-rolled coils and plates is likely to expand in July, as the recovery from maintenance far exceeds the affected production by new maintenance and due to the switches from construction products.
An SMM survey showed that 35 steelmakers in China plan to produce a total of 9.92 million mt of hot-rolled coils and plates in July, up 5.9% from the realised output in June.
A potential increase in supply, combined with limited upside room in end-user demand, paints a weaker fundamentals outlook for HRC in July.
The recovery from maintenance is estimated to bring about 398,000 mt of hot-rolled coils and plates output back online this month, while new maintenance will affect 290,000 mt. That leads to an increase of 108,000 mt in output compared with the previous month.
Mills, meanwhile, are switching from construction steel rebar to HRC, which are used in automobiles and home appliances, due to the divergence of profits. Rebar spot prices in China have been struggling to move higher since June as demand is depressed by heavy rain and floods which have disrupted operations at construction sites, while relatively stronger fundamentals lifted spot prices of HRC.
Exports to continue to fall
A pick-up in domestic demand encourages Chinese HRC producers to pour more cargoes into the domestic market this month, while continued weakness in export orders and low export prices will extend the decline in the output for export, according to the SMM survey.
The output of hot-rolled coils and plates for domestic sales will expand 6.3%, or 577,100 mt from the month before to 9.69 million mt in July, while that for export will shrink 10.2%, or 25,500 mt to 225,000 mt.
Output from North and South Central China to increase sharply, while gains in the east and west are moderate
North China: Planned output of hot-rolled coils and plates=4.88 million mt, +198,600 mt/4.24%; exports=75,000 mt, -25,500 mt/25.37%
East China: Planned output of hot-rolled coils and plates=2.93 million mt, +79,000 mt/2.77%; exports=15,000 mt, barely changed
South Central China: Planned output of hot-rolled coils and plates=1.74 million mt, +23,000 mt/15.23%; No exports
West China: Planned output of hot-rolled coils and plates=368,000 mt, +44,000 mt/13.58%; No exports
The possible increase in output is not strong enough to turn the fundamentals for HRC in east China to be negative as availability there remain tight and demand continues to improve, and HRC spot prices there will remain firm.
The fundamentals outlook for north and south China, meanwhile, is weaker as the expansion in production is stronger and as demand there struggles to grow further. HRC spot prices in east China are likely to outperform prices in the south and north in July.
