SHANGHAI, Jul 10 (SMM) – Inventories of hot-rolled coils of steel sheets used to produce home appliances and cars in China continued to trend higher this week, as supply increased.

SMM data showed that HRC stocks across social warehouses and steelmakers increased 1.87% in the week ended July 9 to 3.63 million mt, after a 1.89% gain in the previous week. The stocks were 8.5% higher than the same period last year.

Shanghai HRC futures moved sharply higher this week, lifting the nationwide average spot prices by 128 yuan/mt and encouraging speculative traders to step up purchases from mills. That, combined with increased shipments from northern mills to east and south China amid wider spreads between regions, lowered HRC stocks at steel mills by 0.87% this week to 1.03 million mt, after the in-plant stocks rose for two consecutive weeks.

Increased shipments from mills, meanwhile, lifted HRC stocks at social warehouses by 3% this week to 2.6 million mt, marking the second consecutive week of gains, as end-user demand remained stable.

The HRC market remains in a tight demand and supply balance, as three consecutive weeks of gains are not significant enough to lift the inventories from low levels, and that will lend support spot prices with futures contracts posting strong performance amid macro optimism.

However, the inventories are unlikely to resume their downtrend as an SMM survey showed that output of hot-rolled coils and plates will rise in July from June and as the demand expansion driven by the infrastructure push and the recovery of automobiles and home appliances sectors slows down.