China HRC output to extend gains in December on firm demand from end-users

SHANGHAI, Dec 9 (SMM) — An SMM survey showed that 35 steel makers in China plan to produce a total of 10.41 million mt of hot-rolled coils and plates in December, up 1.4% from the realised output in November.

China's monthly output of hot-rolled coils and plates (planned production)

In the past two months, Chinese manufacturers received robust orders, especially orders from overseas buyers, which boosted demand for hot-rolled coils and plates. Therefore, steel makers have kept their output for domestic sales at high levels in recent months.

In December, overseas HRC prices have increased as manufacturing activities have recovered gradually, but supply of raw materials has lagged behind, and this prompted domestic steel makers to significantly raise output for export.

The output of hot-rolled coils and plates for domestic sales will shrink 1%, or 97,500 mt from the month before to 9.81 million mt in December, while that for export will surge 76.3%, or 261,000 mt to 603,000 mt. HRC output rose slightly in most regions in December, but dipped in a few regions due to maintenance of blast furnace and rolling lines.

Planned output of hot-rolled coils and plates by region

North China: Planned output of hot-rolled coils and plates=5.49 million mt, -84,500 mt/1.52%; exports=301,000 mt, +181,000 mt/150.83%

East China: Planned output of hot-rolled coils and plates=2.78 million mt, +138,000 mt/5.23%; exports=302,000 mt, +80,000 mt/36.04%

South Central China: Planned output of hot-rolled coils and plates=1.81 million mt, +50,000 mt/2.84%; No exports

West China: Planned output of hot-rolled coils and plates=343,000 mt, +60,000 mt/21.2%; No exports

Decent profits drove some steel mills which had switched to produce rebar in November returned to produce HRC in December, which contributed to the increase in planned HRC output this month.

Slightly higher planned HRC output should have posed greater supply pressure, but as SMM learned, most of the steel makers have raised output proportion of cold-rolled coil feedstock, and thus output for domestic sales was limited. In addition, steel mills increased exports and reduced domestic sales, which, in fact, eased domestic supply pressure. Meanwhile, end-user demand remained strong as sales and output at HRC downstream users such as automobiles and home appliances were robust.

However, weakening demand for some terminal products such as pipes and machinery and investors’ reluctance to accept higher prices are likely to deter HRC prices from rising further.