Local Chinese HRC prices continue to decline, still some room for further decreases

HRC prices in the Chinese domestic market have moved down further over the past week, even despite the recent decline in supply volumes, while market sources believe there is still some limited room for further declines.

During the given week, production of HRC has declined significantly amid production curbs in Tangshan, the major steelmaking hub in northern China, while inventories have continued to indicate slight rises, indicating that the ongoing sluggish demand continues to exert a negative impact on the HRC market. Widespread high temperatures, typhoon weather and rainfall across China, coupled with the traditional off-season for steel consumption, have dampened outdoor construction activity and manufacturing operating rates. Downstream sectors, including automotive and machinery manufacturing, have largely limited their procurement to essential production needs. Market participants have generally maintained a low-inventory strategy, with no signs of concentrated restocking.

So, domestic HRC prices in China are at RMB 3,300-3,390/mt ($486-499/mt) ex-warehouse on August 4, with the average price level RMB 53/mt ($7.8/mt) lower compared to that recorded on July 28, according to SteelOrbis' data. 

Moreover, coke prices are expected to indicated a third round of price declines, which will weaken the support for HRC prices in the future.

It is thought that HRC prices in the Chinese domestic market will soften in the coming week, though within a limited range, depending on production costs. However, demand for HRC may not improve quickly, which will negatively affect prices.

As of August 4, HRC futures at Shanghai Futures Exchange are standing at RMB 3,201/mt ($483/mt), decreasing by RMB 80/mt ($11.8/mt) or 2.4 percent since July 28, while decreasing by 0.19 percent compared to the previous trading day, August 3. 

$1 = RMB 6.7917