China's CR production increase shifts balances

SteelOrbis Shanghai China's cold rolled production increase this year closed the gap between hot and cold rolled product prices. Now cold rolled product prices are weaker while hot rolled product prices are stronger. It was just the opposite last year. According to the statistics, China's hot rolled production for July totaled 5.7089 million metric tons, up 987,700 metric tons or 20.9 percent year on year. The cumulative production from January to July reached 37.0818 million mt, up 7.7411 million mt or 26.4 percent year on year. Meanwhile, cold rolled production increased 56,6 percent, or 778.100 metric tons year on year to 2.1519 million metric tons in July. The cumulative production from January to July reached 13.59 million metric tons, up 4.4063 million metric tons or 48 percent year on year. The rapid growth in China's cold rolled production is mainly because many cold rolling lines have been put into operation this year. Whereas, many hot rolling lines were put into operation in the second half of last year. Therefore, hot rolled production growth slowed down. Now, it is logical to expect an increase in the number of value added flat products in the future. Looking at the last week, China's flat rolled prices moved stable with flat commercial activity and continuous decline in the market inventory. Both hot and cold rolled product prices remained unchanged, while only the average price of imported 0.6 mm x 1,250 mm 08YU cold rolled coil increased RMB 50/mt ($7) to RMB 5,050/mt. For hot rolled products, the price difference between various local markets is now at a reasonable level. Some new supply will be put into the market next week, which may have some impact on the current market prices. Yet, due to the low market inventory currently, they are not expected to have a strong impact. Therefore, the prices will probably see a slight decrease. China's cold rolled market prices continued remaining at a low level, and a slight decrease has been observed. According to the current situation, in spite of the sharp decrease in cold rolled imports this year, there will obviously be a surplus due to rapid growth in cold rolled production. However, currently the private mills are supplying more than one third of common cold rolled products. The raw materials needed for CR production, such as slabs and hot rolled coils are under the control of large scale steel mills. When the prices of these materials reach a high level, most of the private mills will prefer limiting their production and orient their product structure so as to reduce the supply and prevent cold rolled product prices from a sharp decline. Next week, cold rolled coil market is expected to continue fluctuating at a weak level.