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Short-term Steel Prices Will Follow the Cost Side with Downward Potentials
Jun 27, 2022 10:22CST
Source:SMM
More steel mills are likely to carry out maintenance, which will significantly pull down the overall supply. Hence the fundamentals of steel will improve marginally. However, SMM believes that due to the off season, the end demand is not enough to support the sharp rebound in steel prices. It is expected that the short-term finished product prices will follow the cost side with downward potentials. In addition, since the current production reduction of steel mills is mostly focused on rebar, rebar prices are expected to outperform that of HRC.

SHANGHAI, Jun 27 (SMM) - Rebar output dropped palpably due to frequent production cuts across steel mills. In terms of rebar, the production was muted due to serious losses suffered by steel mills, and the overall supply slumped amid frequent production cuts. Looking ahead, rebar supply is likely to extend the declines as steel mills are increasingly less interest in producing when rebar prices keep falling, and more mills will join the queue of suspending the production for maintenance. In terms of HRC, the output increased slightly last week mainly because less steel mills were under maintenance last week. Going forward, as the current production reduction is mostly found in the production of rebar, and the impact on the supply of HRC is temporarily small, according to SMM research. Therefore, the short-term HRC supply will remain stable.

The trading volume of steel stood low amid poor weather conditions and subsided terminal demand. For rebar, under the extreme weather conditions including rain in the south and drought in the north, the terminal demand continued to be sluggish, and the transaction was also poor. Looking into this week, the traditional off-season of the industry, coupled with the current weather, has made it difficult for construction projects to advance smoothly. It is expected that the weak demand will not improve in the short term, and a small amount of speculative demand will not be able to overturn the status quo of the overall demand side. However, many steel mills have recently disclosed their maintenance plans one after another, which may give the market some positive feedback. In terms of HRC, since entering the off-season, the terminal demand has remained sluggish, and the overall shipments were not smooth either. Going forward, the off-season effect, combined with the poor manufacturing orders, will keep the demand side under pressure, and it is unlikely that the fundamentals will improve significantly.

More steel mills are likely to carry out maintenance, which will significantly pull down the overall supply. Hence the fundamentals of steel will improve marginally. However, SMM believes that due to the off season, the end demand is not enough to support the sharp rebound in steel prices. It is expected that the short-term finished product prices will follow the cost side with downward potentials. In addition, since the current production reduction of steel mills is mostly focused on rebar, rebar prices are expected to outperform that of HRC.

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