【SMM Hot Topic】Domestic HRC Production May Have Limited Fluctuation Space in May

• HRC Production Growth in April Slightly Below Expectations

According to SMM data, as of April 24, the weekly average domestic HRC production was 3.3262 million mt, showing a trend of lower output in the early period and higher output in the later period, with a slight increase of 0.13% MoM from March. The growth in HRC production in April was slightly below expectations, primarily due to the continued impact of maintenance at some steel mills in early April. Additionally, as HRC profits declined, some steel mills shifted pig iron production to construction materials in mid-April. Under these combined influences, the growth in HRC production in April fell short of expectations.

• Based on announced maintenance schedules, the impact of hot-rolled maintenance in May is expected to increase by 57,400 mt MoM

According to the latest maintenance data released by SMM, the temporary impact of hot-rolled maintenance in May is estimated at 757,200 mt, an increase of 57,400 mt MoM from April. Regionally, the announced maintenance in May is distributed across markets in east China, north China, and other regions, with most of the maintenance being previously scheduled annual maintenance.

On the profitability front, in April, pig iron production showed an increasing trend, supporting raw material prices. Against the backdrop of tariff impacts and a marginal decline in domestic demand, the cost price decline in the ferrous metals series was significantly less than the decline in steel prices, leading to a deterioration in steel mill profits on a MoM basis. Specifically, hot-rolled profits fell from an average of 226.13 yuan/mt in March to 145.74 yuan/mt, while rebar profits dropped from an average of 141.33 yuan/mt in March to 85.26 yuan/mt. The decline in profits on a MoM basis has led steel mills to prioritize maintaining stable production, with little willingness to significantly increase output.

• In May, the fluctuation range of domestic HRC production may be relatively limited

Overall, on one hand, the impact of maintenance at domestic steel mills in May is expected to remain basically stable MoM compared to April, coupled with a slight decline in steel mill profits, resulting in low enthusiasm for increasing production. Additionally, affected by the off-season effect, domestic downstream demand in May is expected to gradually weaken, with order and inventory pressures also rising. SMM expects that the flexibility in hot-rolled production scheduling at domestic mainstream steel mills in May will be relatively limited, with domestic HRC production continuing to fluctuate at a moderately high level.