SMM daily comment on domestic HRC market (Aug 11)

SHANGHAI, Aug 14 (SMM) –

HRC futures rolled over last Friday, closing down 0.03% at 3,937 yuan/mt. In the spot market, mainstream offers for HRC declined last Friday. HRC supply increased this week. Low HRC prices boosted market sentiment, bringing with it terminal demand picking up, thereby slowing down social inventory hikes. In the follow-up, crude steel output limit was not yet fully implemented, and steel mills were reluctant to reduce production. According to SMM research, scheduled HRC production of steel mills in August increased significantly, and so pressure on the supply side may increase significantly. From the demand side, low HRC prices gave a boost to terminal demand, but if the price continues to trend up, the demand may not be sustainable. In addition, players in terminal market kept their inventory low. Under such circumstance, unbalanced supply-demand fundamentals were reported. On the macro level, CPI and PPI data in China improved this week, but there was still a risk of deflation, and there were rumors of default in many real estate companies during the week, showing that the real estate is unlikely to pick up in the short term, and hitting market confidence to a certain extent. The real estate data will be released on August 15. If the data improves, the market sentiment is expected to stabilize. Recently, policy on crude steel production restrictions was reported again, and participants expected the policy to be implemented next week. Therefore, boosted by the expectation and lingering cost supports, the short-term HRC price is unlikely to succumb to downward pressure, and will swing in the range of minus 100 yuan/mt to plus 100 yuan/mt. The HRC 2310 contract is expected to run in the range of 3,850-4,100 yuan/mt.