China's HRC prices to decline in June

Chinese prices of hot-rolled coil (HRC) are likely to fluctuate between Yuan 3,720-3,800/tonne ($513.4-524.5/t) this month, lower than the range tracked during May of Yuan 3,790-3,880/t, suggests Mysteel in its latest monthly report on the commodity. The contraction would result from the tepid demand for coils and high levels of both supply and stocks forecast for this month, it noted.

As of May 31, China's spot price of Q235 4.75mm HRC under Mysteel's assessment was at Yuan 3,834/t including the VAT, higher by a tiny Yuan 11/t or 0.29% on month.

June is usually a dull month for steel consumption in China so the stance of market participants has gradually turned cautious. Moreover, the improved steel-market sentiment that greeted news of Beijing's series of favorable economic and industrial policies announced last month has gradually waned.

Overall, HRC demand this month is expected to be tepid, with most buyers just purchasing for their immediate use, Mysteel's report noted.

For example, Mysteel's recent survey found that in China's automotive sector - one of the country's major consumers of flat products - less than one-quarter of the 38 automakers sampled across China responded that their orders for June delivery were higher than those in May. The car companies and their components suppliers may tend to digest their relatively high steel inventories at hand, instead of procuring more from mills, the survey noted.

Meanwhile, demand from another major consumer of flat steel products, the home appliance sector, will likely show a slight dip this month. The total scheduled production in June of air-conditioners, refrigerators and washing machines is forecast to reach 35.57 million units, down by nearly 6% on month, according to the latest data released by ChinaIOL.com, a leading domestic information provider serving the home appliance and refrigeration industries.

As of May 31, the apparent use of HRC in China had decreased by 2.13% on month to 3.17 million tonnes, Mysteel's survey showed.

On the supply side, however, steelmakers' enthusiasm for producing hot coils is unlikely to cool significantly in June due to the mill's recovered profitability, Mysteel's report predicts, observing that the current high level of hot coil output may increase further. Several steel mills in North China will resume operations in June after completing maintenance stoppages, it added.

HRC production among the 37 Chinese flat steel producers Mysteel regularly monitors had reached 3.23 million tonnes by May 31, higher by 2.24% on month and close to this year's peak of 3.26 million tonnes reached in early April.

Also as of May 31, total HRC inventories held by traders in the 33 Chinese cities Mysteel tracks nationwide, and the 37 steel mills it samples, had also mounted by 2.26% on month to reach 4.19 million tonnes.

In conclusion, the report also warned that as June is usually a poor month for steel consumption in China, tepid demand may cause prices of steelmaking raw materials such those of iron ore and coke to decline, which in turn could lead their cost support for steel prices to waver.

Note: This article has been written in accordance with an article exchange agreement between Mysteel Global and BigMint.