[SMM Analysis] Off-season Approaches: Will Lecong's HRC Inventory Continue to Decline?

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

• The shipment of mainstream resources has slowed down, and supply has fluctuated at lows.

Shipments to Lecong decreased WoW this week. Specifically, on the one hand, shipments 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 low level of shipments in the short term. On the one hand, there is the issue of DDH's pig iron diversion. On the other hand, WG's shipments to South China will be suspended in the third ten-day period of the month, potentially slowing down the shipment pace. Overall, supply pressure is relatively small. Therefore, it is expected that Lecong's short-term arrivals may continue to decrease.

Figure 2-SMM Lecong HRC Arrivals

• Lecong processing volume is at a high level compared with the same period in previous years

Last week, Lecong's HRC processing volume 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, Lecong's processing volume 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, 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 remain at a high level YoY.

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