Hot Rolled Coil (HRC) markets showed regional divergence with China's prices rising modestly due to production recovery and inventory accumulation, while European markets faced continued pressure from weak demand and competitive Asian imports. Chinese stockpiles increased amid seasonal patterns, contrasting sharply with unprecedented demand weakness in Italy and Germany.
Key Takeaways:
The Chinese HRC markets showed strength with a small 0.4% increase in price based on improving mill production as maintenance cycles were completed. The market experienced the same accumulation patterns of inventory typical in the pre-seasonal off-peak approach, with total HRC inventory increased 1.31% week over week. The regional inventory context was interesting with East China continuing to destock while Central, Southern, Northern, and Northeastern regions reported inventory accumulation. Even though stocks are increasing they remain well below year-ago levels, with social inventory down 27% YoY, providing underlying support for the stability of HRC prices.
German HRC markets faced headwinds with a 0.5% decline, reflecting the broader European struggle with weak demand and competitive import pressures. Market participants indicated that previously attainable price levels were no longer achievable, with workable prices falling within increasingly broad ranges. The combination of seasonal trends, falling iron ore prices, and competitive import offers created a challenging environment for domestic producers.
Italian HRC markets showed the greatest reduction of 1.2%, with local sources reporting a historically unprecedented level of demand weakness in the context of its 20+ years of existence. The market demonstrated distinctly differentiated volume-price categories, with smaller quantities associated with higher prices, larger quantities associated with lower prices. Moreover, strong offers from Indonesia, Turkey, Vietnam, and Thailand intensified the downside pressure on domestic pricing, forcing Italian producers to be very competitive.
Import competition was the dominant factor in the European HRC markets with Asian suppliers presenting competitive prices, notwithstanding logistics shortcomings. Indonesian HRC offers remained aggressive, while the Turkish suppliers weighed competitive prices with shorter lead times. Vietnamese and Thai suppliers were also helpful and viable alternatives for Italian end users.
The upcoming Carbon Border Adjustment Mechanism (CBAM) added complexity to import decisions, with traders suggesting that Asian import prices may have reached their floor. Turkish mills showed reluctance to reduce prices further, indicating potential stabilization in import pricing.
The EU passenger car registrations send mixed signals and overall growth of 1.6% YoY in May, hiding stark regional differences. While Spain exhibited strong 18.6% growth, France was down 12.3%, and Germany only showed a modest 1.2% growth. These varying automotive trends have made for uneven HRC demand across Europe.
As per ChemAnalyst, the HRC market outlook remains regionally fragmented, with Chinese markets likely maintaining cautious optimism through seasonal inventory building and production recovery, while European markets face continued pressure from import competition and structural demand challenges until automotive sector recovery accelerates and CBAM implementation clarifies trade dynamics, potentially requiring 2-3 quarters for meaningful price stabilization in the region.
