South Korean distributors of hot rolled coils (HRC) are anticipated to have the hardest time of the year in the months of July and August due to the difficulty in drawing down their inventory caused by weak demand for products in the domestic market.
Demand and supply of domestic HRC have failed to find equilibrium after local producers increased their ex-factory prices in May. However, it is expected that reduced production of HRC during planned facility repair works in August and September will contribute to relieving the pressure from inventory.
Particularly, sluggish sales by producers and primary distributors of HRC make it difficult to easily forejudge the smooth inventory adjustment of the products in the market.
In fact, the inventory of HRC has continued to be on the increase since January this year. As of the end of June, HRC inventory in the primary distribution market totaled 302,000 mt, a slight increase month on month. Even though the inventory of HRC at end-users has decreased, a prolonged slump in the demand from constructors resulted in a continuous increase in the inventory of the products in the distribution market. Imports of HRC dropped 25.2 percent in June compared with May, but a conspicuous fall in HRC purchases by small and medium-size consumers was not helpful for distributors' inventory adjustment.
It is estimated that three local South Korean HRC producers' planned facility repair works in August and September will bring about a decrease of about 500,000 mt in their output, which is highly likely to lead to a drop in their supply of the products to distributors. In expectation of such a fall in the supply of domestic HRC, the distribution market price for HRC in South Korea has recently gone up by about KRW 10,000/mt ($10/mt), and distributors are expecting there will be a gradual further increase in the price for HRC products in the future.