Chinese hot rolled inventory soars, market fluctuates

During the first week after the National Day holiday (October 1-8), China's domestic hot rolled inventory soared strongly, just as market players had anticipated. Although since the start of September the increase in China's HRC export volume has provided the local market with some relief from the pressure of high inventory, the increased export volume is still far from sufficient to give the market adequate support against the high outputs of the mills. As regards the future, there are various views heard among traders, but the majority of them appear pessimistic about the prospects for the future trend.

The strong rise in inventory has been the most notable development in China's post-holiday HRC market, as market players have appeared to hesitate to engage in trading activity. In recent days, hot rolled prices in China's leading markets have moved down by a small margin on a fluctuating trend. On the other hand, the stable movement of steel strip prices has helped provide support for local hot rolled prices.

On the export side, the export market for Chinese HRC has been registering a brisk performance in recent days, with many deals concluded for HRC exports to South Korea and Africa. Due to a certain shrinkage seen in demand in the European market, some Chinese exporters have only been able to achieve deals with their old customers in that region. At present, export quotations of Chinese 3.5-10.0 mm x 1,250/1,500 mm HRC are in the range of $470-490/mt, with some mills offering their materials at the level of $460/mt for October shipment. Many exporters have stated that Chinese HRC exports began to see certain improvements in September; however, they added that they still did not have enough confidence in the future on account of the slim profit margin available for HRC exports.

As disclosed by Wu Xichun from the China Iron and Steel Association (CISA) on October 12, China's crude steel production for September again hit a monthly historical record, equivalent to an annual output of 618 million mt and a daily output of 1.693 million mt. According to the statistics, the country's steel inventory in early October (October 1 -10) reached 11.91 million mt, marking a new peak for the current year. For instance, hot rolled inventory in Shanghai exceeded 1.5 million mt on October 9.

Overall, although the brisk export performance has alleviated the pressure on the market to a certain extent, the domestic market still faces significant inventory pressure. Looking at the current situation, inventory consumption, steel production levels, as well as the export trade will be the decisive factors affecting the future trend of China's hot rolled market. With downward room still available for market prices, the Chinese HRC market is likely to continue its fluctuating trend in the coming week.