【SMM Hot Topic】Domestic HRC Production May Have Limited Room for Change in May

• The increase in HRC production in April was slightly lower than expected.

According to SMM data, as of April 24, the weekly average domestic HRC production was 3.3262 million mt, showing a trend of being lower in the first half and higher in the second half, up 0.13% WoW from March. The increase in HRC production in April was slightly lower than expected, primarily due to the continued impact of maintenance at some steel mills in early April. In addition, as HRC profits declined, some steel mills shifted their pig iron production to construction materials in mid-April. Under the combined influence of these factors, the increase in HRC production in April fell short of expectations.

• Based on the announced maintenance schedule, the impact from hot-rolled maintenance in May increased by 57,400 mt MoM.

According to the latest maintenance data released by SMM, the impact from maintenance for hot-rolled coil in May is temporarily estimated at 757,200 mt, up 57,400 mt MoM from April. From a regional perspective, the announced maintenance in May is distributed across markets such as east China and north China, 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 decline in ferrous metals series cost prices was significantly less than the decline in steel prices, causing steel mill profits to deteriorate MoM. Specifically, the average hot-rolled coil profit fell from 226.13 yuan/mt in March to 145.74 yuan/mt, while the average rebar profit dropped from 141.33 yuan/mt in March to 85.26 yuan/mt. The MoM decline in profits led steel mills to prioritize maintaining stable production, with little willingness to significantly increase output.

• In May, the room for change in domestic HRC production may be relatively limited.

Overall, on one hand, the impact from maintenance at domestic steel mills in May was basically stable compared to April, coupled with a slight decline in steel mill profits, resulting in low enthusiasm for production increases. Additionally, affected by the off-season effect, domestic downstream demand in May will gradually weaken, and the pressure from orders and inventory will also gradually increase. SMM expects that the flexibility for fluctuations in the production schedule of hot-rolled coils at domestic mainstream steel mills in May will be relatively limited, and domestic HRC production in May will continue to fluctuate at a moderately high level.