[SMM Hot Topic] Macro vacuum & intensified contradictions in fundamentals; price center of HRC expected to decline slightly in July

• In June, the nationwide average price of HRC fell 2% MoM.

In June, the spot and futures prices of HRC were in the doldrums on a MoM basis. The monthly average nationwide price of HRC from SMM was 3,173.1 yuan/mt, down 2.3% MoM. The monthly average price of the most-traded HRC futures contract in June was 3,099 yuan/mt, down 2.7% MoM, while the spot-futures price spread strengthened slightly MoM.

• In the last week of June, HRC inventory began to build up.

In June, HRC production maintained an upward trend, mainly driven by the production resumptions of steel mills that had undergone maintenance and increased production schedules. In terms of inventory, as of June 26, the nationwide social inventory of HRC in 86 warehouses (large sample) tracked by SMM was 3.0017 million mt, up 22,200 mt or 0.75% MoM, and down 27.00% YoY. In the fourth week of June, the nationwide social inventory of HRC began to accumulate. Except for east China, inventories in central, south, north, and north-east China all increased, and the total inventory of HRC also began to build up. In terms of apparent demand, the weekly average nationwide apparent demand of HRC from SMM in June was 3.3232 million mt, down 1.69% MoM from May and down 4.18% YoY. As the off-season approached, the downstream demand for HRC was impacted to a certain extent.

• In July, the price center of HRC is expected to move down slightly.

Entering July, considering the reduction in maintenance and the relatively favorable profit levels of steel mills, it is expected that the HRC production of steel mills in July will increase slightly from June. In terms of demand, although HRC is relatively less affected by seasonality than rebar and other varieties, the downstream demand still has strong resilience. However, frequent high temperatures and rainfall in July will still affect market transactions and logistics transportation to a certain extent, thereby suppressing demand release. It is expected that the total inventory in July will accumulate slightly MoM, and the fundamental contradictions will be greater than those in June.

Macro side, July is still in a vacuum period for macro policies, and the policy level has limited ability to boost prices.

Overall, HRC prices in July will face a double test brought by the macro vacuum and the rising fundamental contradictions. It is expected that the price center of HRC will move down slightly in July.