So far, nine major mills across China plan to conduct maintenance in October, which would result in an estimated hot rolled coil output loss of over one million tonnes in total.
A Beijing-based analyst said that it was understandable for mills to schedule maintenance at the moment as spot prices are currently in a downward trend, which is squeezing their profit margins.
Eastern Chinese HRC prices were at 2,900-2,920 yuan ($472-475) per tonne including VAT on Friday September 26, down 290-310 yuan ($47-50) per tonne or about 9.3% from levels at the end of August, according to Steel First's price archive.
“I don’t think the maintenance will trigger any momentum for market prices to go up, as they are already within expectations. Mills usually carry out maintenance in the summer time, but this year it was generally put off as mills were enjoying profits at that time,” a source at a Hebei-based steelmaker said.
Output loss insignificant
Market participants contacted by Steel First generally considered the loss in HRC output from the planned maintenance as insignificant compared with the country’s large HRC production.
“I don’t think it will lead to a tightness in supply, as the estimated loss is only around two days’ worth of output for the whole country,” a source at a state-owned mill in northern China said.
China produced a total of 15.91 million tonnes of HRC in August, or a daily average of about 513,000 tonnes, according to the National Bureau of Statistics.
The estimated 1.05 million tonnes of HRC output loss only accounts for 6.6% of the country’s monthly total, which is not enough to make any difference to the supply-demand imbalance, a Shanghai-based trader said.
Most market participants still have a negative outlook for October despite it being a traditional peak season for the steel industry.
“I’m not expecting any substantial price recoveries due to the lack of incentives. Maintenance alone is not strong enough to push prices up, unless there are large-scale production cuts,” a Hong Kong-based trader said.
However, mills contacted by Steel First generally said that they have no plans to cut their production yet, even as falling steel prices continue to squeeze their profits, leading some of them to incur losses.
“Major production cuts are unlikely in the short term given the weakening iron ore prices. Under these circumstances, the country’s steel prices could continue to be dragged down by persistently high output,” a source with a Shandong-based mill said.