[SMM Hot Topic] Fewer Maintenance Shutdowns & High Profits: Domestic HRC Production Expected to Continue Increasing in July

• HRC production growth in June slightly below expectations

According to SMM data, as of June 26, the weekly average domestic HRC production was 4.0768 million mt, showing a gradual upward trend, increasing slightly by 1.32% MoM from May. The growth in HRC production in June was slightly below expectations, primarily due to the impact of maintenance at steel mills in regions such as north-east China, east China, north China, and western China. Additionally, the recent relatively small gap in production profits between rebar and HRC led some steel mills to adjust their pig iron allocation. Under these combined influences, HRC production in June increased slightly, but the growth was below expectations.

• Based on announced maintenance schedules, the impact of HRC maintenance in July decreased by 174,900 mt MoM

The impact of HRC maintenance in July is temporarily estimated at 342,100 mt, a decrease of 174,900 mt from the previous month. From a regional perspective, the announced maintenance in July is distributed in markets such as north-east China and western China, with most of the maintenance being annual maintenance.

On the profitability front, in June, steel prices fluctuated slightly while raw material prices weakened, leading to a MoM improvement in steel mill profits. Specifically, HRC profits increased from an average of 130.4 yuan/mt in May to 199.44 yuan/mt in June, and rebar profits increased from an average of 107.13 yuan/mt in May to 154.23 yuan/mt in June. Against the backdrop of rising profits, steel mills' production enthusiasm remained moderate.

• In July, domestic HRC production is expected to continue increasing

Overall, considering the slight decrease in the impact of maintenance at domestic steel mills in July compared to June, coupled with the rise in steel mill profits and moderate production enthusiasm, SMM expects domestic HRC production at mainstream steel mills to continue increasing MoM in July. However, given the intensifying impact of the off-season, demand pressure in some downstream industries is expected to weaken, and order and inventory pressures will gradually rise, limiting the expected growth in production in July.