Little Chance for Sharp Rises in CRC and HRC Prices in the Near Term

In May, domestic markets for Cold Rolled Steel Coils (CRC) and Hot Rolled Steel Coils (HRC) saw little improvement. Their prices moved up and down. Most steel traders felt worried about future market prices. Weak demand will make CRC and HRC markets swing sideways in the near future.

In the last week of May, CRC and HRC prices in Shanghai fell by 40 RMB per ton. In the first week of June, these prices dropped another 30 RMB per ton.

Recently, safety checks on coal mines in Shanxi pushed up prices of coking coal and coke. Steel production costs went up. Besides, the seasonal low demand period has come. CRC and HRC prices will not rise sharply in a short time.

Market trading was slow in this period. End buyers bought goods carefully. They only bought what they really needed. Steel traders struggled to sell stocks. Some sellers accepted lower prices from buyers to clear goods. This made steel transaction prices drop further.

Looking at the future market of CRC and HRC, their prices are unlikely to surge quickly. Prices will mainly swing within a narrow range.

Demand Side

Hot and rainy days are becoming more common. End market demand dropped clearly.

Output and sales of home appliance and car makers fell recently. These industries use large amounts of CRC and HRC.

Industry groups released the latest production plan report for three main white home appliances in China. The total planned output of air conditioners, fridges and washing machines in June hit 30.04 million units. It was 11.8% lower than the actual output last year in the same period.

Planned air conditioner output reached 15.23 million units, down 18.9% year on year.

Planned fridge output hit 7.83 million units, down 4.1% year on year.

Planned washing machine output stood at 6.98 million units, down 1.9% year on year.

Car sales also went down.

From May 1 to May 24, retail sales of passenger cars across China reached 989,000 units. The figure fell 24% year on year and rose 10% month on month.

Since the start of this year, total retail sales of passenger cars reached 6.594 million units, down 19% year on year.

Lower output and sales of cars and home appliances cut demand for CRC and HRC. Nothing can strongly push up CRC and HRC prices.

Supply Side

Markets for CRC and HRC still have more supply than demand now. This situation stops prices from bouncing back.

Some steel mills cut production plans because of thin profits. But total output of HRC remains high. Steel inventories stay at high levels.

At the end of May, social inventory of HRC in 35 major national markets hit 3.4012 million tons. It rose 73,600 tons week on week, with a growth rate of 2.21%.

The CRC market faced the same problem. Both factory inventory and social inventory of CRC stayed high.

The oversupply situation largely means CRC and HRC prices will probably fall with swings later on.

Cost Side

Raw materials still give strong support to steel prices recently.

Raw material prices moved in different directions in May. The average iron ore price increased. Two rounds of coke price rises took full effect. Scrap steel prices edged up slightly, but its average price dropped.

Higher iron ore and coke prices lifted the average monthly production cost of steel.

In June, the raw material market will show three features. Iron ore prices stay high but face downward pressure. Coke prices remain firm at high levels. Scrap steel prices have small ups and downs.

Overall steel production costs will keep fluctuating at high levels. Raw material costs can still steadily back steel prices.