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

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

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 increase in HRC production in June was slightly lower than expected, mainly due to the impact of maintenance work at steel mills in north-east China, east China, north China, and western regions in June. In addition, the profit gap between rebar and HRC production was relatively small recently, leading some steel mills to adjust their pig iron production. As a result, HRC production in June increased slightly, but the increase was lower than expected.

• Based on the announced maintenance schedules, the impact from hot-rolled maintenance in July decreased by 174,900 mt MoM.
The impact from hot-rolled maintenance in July was temporarily estimated at 342,100 mt, a decrease of 174,900 mt MoM from the previous month. From a regional perspective, the announced maintenance in July was distributed across markets in north-east China, western China, etc., 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, while rebar profits rose from an average of 107.13 yuan/mt in May to 154.23 yuan/mt. The MoM increase in profits kept steel mills' production enthusiasm moderate.

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

Overall, the impact from maintenance at domestic steel mills is expected to decrease slightly MoM in July compared to June. Coupled with the increase in steel mill profits, steel mills' production enthusiasm remains moderate. SMM predicts that domestic HRC production at mainstream steel mills will continue to increase MoM in July. However, considering the intensified impact of the off-season, demand pressure in some downstream industries is expected to weaken, and order and inventory pressure will gradually rise, limiting the expected increase in July production.