[SMM Hot Topic] HRC Production Continued to Decline in May, Will It Rebound in June?

• HRC Production Declined in May, with Rolling Sample Size Nearly 4% Lower Than Last Year

According to SMM data, the average weekly HRC production in May was 3.274 million mt. This week, HRC production stood at 3.2338 million mt, a WoW decrease of 11,400 mt. Compared to the same period in previous years, current HRC production is 7.08% lower YoY. Based on the latest rolling sample of SMM's weekly HRC production, current HRC production is 3.9835 million mt, a 3.72% decrease YoY.

• Decline in Production Schedule, Increased Maintenance Impact, and Weakened Profitability Led to a Drop in HRC Production in May

Since the start of May, HRC production has continued to decline, primarily due to reduced production schedules at steel mills, concentrated maintenance activities, and a decline in profitability advantages.

On the production schedule side, according to the latest SMM tracking, 39 mainstream steel mills producing HRC planned a total of 14.1287 million mt of hot-rolled commercial materials in May, with a daily average of approximately 455,800 mt. This represents a WoW decrease of 13,300 mt from the actual daily average production of hot-rolled commercial materials in April, a 2.8% decline.

In terms of maintenance, the impact of hot-rolled maintenance in May is temporarily estimated at 968,800 mt, an increase of 223,500 mt from the previous month. The increase in maintenance impact at steel mills in east China, north China, south China, and western regions is one of the main reasons for the production decline.

Additionally, from the profitability perspective, the average SMM HRC profit in May was 130.84 yuan/mt, while the average rebar profit was 107.43 yuan/mt. With similar profits for HRC and rebar, steel mills have low enthusiasm for increasing HRC production, and some steel mills are actively adjusting the flow of pig iron. Under these combined impacts, HRC production continued to decline in May.

• HRC Production in June is Expected to Increase MoM

In terms of maintenance, according to SMM survey data, the impact of domestic hot-rolled maintenance in June is temporarily estimated at 427,000 mt, a decrease of 541,800 mt from the previous month. The significant decline in maintenance impact, coupled with the resumption of production at steel mills after maintenance, is expected to drive a rebound in HRC production in June. However, considering the entry into the traditional consumption off-season, the market's demand expectations for June are cautious. Additionally, with the recent continuous weakening of steel prices and a decline in steel mill profits, the average HRC production in June is expected to be around 3.3-3.33 million mt.