[SMM Analysis] With the off-season approaching, can the inventory reduction in Lecong continue?

This week, the inventory of HRC in Lecong was 63.03 mt, down 30,800 mt WoW, a decrease of 4.66%; and down 347,600 mt YoY, a decrease of 35.55%. The inventory of HRC in Lecong has been in a long-term de-stocking phase since early March. With the off-season gradually approaching, will the de-stocking trend in Lecong continue under the current circumstances? Let's examine the fundamental situation of HRC in Lecong.

• Slowdown in Shipments of Mainstream Resources, Supply Fluctuating at Lows

This week, shipments flowing to Lecong decreased WoW. Specifically, on the one hand, resources from North China remained stable. On the other hand, shipments of local mainstream resource DDH decreased slightly WoW, as its medium-thickness plate production line began mass production, possibly diverting pig iron. Looking ahead, local mainstream resources are expected to maintain a relatively low level of shipments in the short term. This is due to, on the one hand, the issue of DDH's pig iron diversion, and on the other hand, WG's shipment schedule for South China may slow down in the third ten-day period of the month, as there will be no shipments during this period. Overall, supply pressure is expected to remain relatively small, so it is anticipated that arrivals in the Lecong market may continue to decrease in the short term.

Figure 2-SMM Arrivals of HRC in Lecong

• Rush to Meet Deadlines at Year-End, Processing in Lecong at Highs Compared to the Same Period in Previous Years

The processing volume of HRC in Lecong last week was 129,900 mt, down 11,787 mt WoW, an increase of 12.43%, and up 4.97% from 123,700 mt in the same period last year. After the New Year holiday, the processing in Lecong recovered rapidly, quickly returning to the level of the peak season in previous years and remaining consistently higher than the same period. With Trump's temporary suspension of tariff imposition, the previously suppressed demand is expected to be released. Overall, the off-season effect in South China is not yet apparent, and processing is likely to continue at a high level YoY.

In summary, influenced by the low arrivals from mainstream steel mills, the supply pressure in Lecong is expected to remain low in the subsequent period. Meanwhile, demand still shows resilience in the short term, and the off-season effect is not significant. Therefore, SMM forecasts that under the pattern of weak supply and stable demand, the inventory of HRC in Lecong will continue to de-stock, and spot prices will remain relatively firm.