What's Driving HRC Price Fluctuations at Current High Levels?

The hot-rolled coil (HRC) market is currently experiencing significant price volatility while maintaining relatively high levels. This paradoxical situation stems from a complex interplay of supply-demand dynamics, cost factors, and market sentiment that creates both stability and uncertainty simultaneously.

Supply Dynamics Creating Mixed Signals

The supply side of the HRC market presents contradictory indicators that contribute to price volatility. According to the latest SMM Steel Survey data, maintenance-related production limitations are rapidly diminishing, creating potential supply pressure:

• Current week maintenance impact: 19,600 mt (↓32,800 mt week-over-week)
• Projected next week maintenance impact: 2,800 mt (↓16,800 mt from current week)
• Supply pressure trend: Increasing significantly as maintenance reaches its lowest point in recent months

This rapid decline in maintenance-related output restrictions indicates a potential supply surge in coming weeks, which would typically exert downward pressure on prices. However, this pressure is being counterbalanced by other market forces.

Demand Factors Showing Conflicting Trends

On the demand side, manufacturing sector performance presents a nuanced picture:

• Manufacturing resilience: End-use demand continues to show relative strength in key sectors like automotive and machinery
• Seasonal patterns emerging: Early signs of typical summer demand deceleration becoming increasingly visible
• PMI performance: Composite PMI output index for June registered at 50.7% (↑0.3 percentage points month-over-month)

The modest PMI improvement suggests manufacturing activity remains in expansion territory (above 50%), but the growth rate remains sluggish compared to historical averages. Industry analysts note this creates a "neither hot nor cold" demand environment that supports price stability rather than directional momentum.

"The current demand environment lacks decisive direction—not strong enough to drive prices significantly higher, yet not weak enough to trigger substantial declines," notes an SMM analyst. "This equilibrium contributes to the high-level price fluctuations we're observing."

How Are Production Restrictions Affecting the Steel Supply Chain?

Production restrictions, particularly in key steelmaking regions like Tangshan, are creating ripple effects throughout the steel supply chain. However, their actual impact often differs significantly from market perceptions.

Tangshan Production Restrictions: Reality vs. Market Perception

The latest SMM survey reveals important nuances regarding production limitations in China's steelmaking hub:

• Confirmed sinter restrictions: Tangshan authorities have implemented limitations on sintering operations at local steel mills
• Buffer capacity: Most steel mills maintain sufficient sinter inventories to absorb short-term production disruptions
• Operational reality: Despite headline restrictions, the immediate impact on blast furnace operations remains limited

This disconnect between announced restrictions and actual production impact creates market uncertainty. Traders and buyers often react to news of restrictions before understanding their practical significance, contributing to market volatility insights.

According to SMM Survey Team findings: "Tangshan steel mills have sufficient sinter inventory, which is unlikely to lead to blast furnace production cuts. Expectations for increased pig iron production suggest furnace charge support won't collapse short-term."

Raw Material Market Conditions

The upstream raw material markets provide additional context for understanding HRC price movements:

Iron Ore Market Status:

• Domestic 66-grade concentrate prices: 870-880 yuan/mt (delivery-to-factory, tax included)
• Imported ore futures (i2509 contract): 708.5 (↓1.32% daily)
• PB fines transaction prices:
  • Shandong: ~700 yuan/mt (↓5-8 yuan/mt)
  • Tangshan: 715-720 yuan/mt (↓5-10 yuan/mt)

Recent iron ore trends continue to influence the broader steel market, creating both challenges and opportunities for producers.

Coking Coal and Coke Situation:

• Low-sulfur coking coal prices: 1,180 yuan/mt in both Linfen and Tangshan regions
• Metallurgical coke prices showing significant quality-based differentiation:
  • First-grade (dry quenching): 1,440 yuan/mt
  • Quasi-first-grade (dry quenching): 1,300 yuan/mt
  • First-grade (wet quenching): 1,120 yuan/mt
  • Quasi-first-grade (wet quenching): 1,030 yuan/mt

These raw material price movements establish production cost floors that effectively limit potential HRC price declines, regardless of temporary supply-demand imbalances.

What's Supporting HRC Prices Despite Growing Contradictions?

Despite accumulating fundamental contradictions, HRC prices continue to fluctuate at relatively high levels. This resilience stems from several key supporting factors that prevent significant price declines.

Inventory Levels Providing Price Support

Current inventory conditions play a critical role in maintaining price stability:

• Historical comparison advantage: Current HRC inventory levels remain significantly lower than the same period in previous years
• Psychological impact: Low inventories reduce trader anxiety about oversupply risks
• Market behavior effect: Limited inventories discourage aggressive price-cutting by mills seeking to move stock

The inventory situation creates what steel traders describe as a "safety net" for prices—even when temporary demand weakness occurs, limited available supply prevents panic selling that would typically drive prices lower.

Cost Structure Maintaining Floor Prices

The underlying cost structure of HRC production continues to provide meaningful support for current price levels:

• Raw material cost foundation: Moderate but persistent support from furnace charge materials establishes production cost floors
• Coking sector dynamics: Coking plants implementing production cuts amid ongoing financial losses
• Supply chain adjustments: Improved shipments reducing coke inventories and easing sales pressure throughout the supply chain

This cost structure creates natural resistance to price declines below certain thresholds. When HRC prices approach production cost levels, steel mills typically reduce output rather than operate at sustained losses, which ultimately stabilizes the market.

Futures Market Performance

The futures market provides additional insights into market sentiment and price expectations:

• Most-traded contract performance: HRC futures closed at 3,136 (↑0.06% daily)
• Trading pattern: Continued high-level fluctuation with limited directional momentum
• Market sentiment: Balanced between supply-demand concerns and cost-based support

The futures market's relative stability suggests professional traders anticipate continued price fluctuations within the current range rather than a decisive breakout in either direction.

How Do HRC Market Conditions Compare to Other Steel Products?

The current HRC market displays distinct characteristics when compared to other steel product categories, particularly construction-focused products like rebar. These differences highlight the segmented nature of steel demand across various sectors.

Rebar Market Comparison

The rebar market, which primarily serves construction applications, shows markedly different performance metrics:

• Futures performance: Rebar futures closed at 3,003 (↓0.20% daily), underperforming HRC
• Spot market activity: Quotes declining by 10-20 yuan/mt across major trading hubs
• Overall trading assessment: Described as "mediocre" by market participants, with limited transaction volume

Rebar Supply Factors:

• Current maintenance impact on building materials: 1.2642 million mt (↓4,700 mt week-over-week)
• Production signals showing mixed trends:
  • Some mills resuming operations after completing maintenance
  • Others implementing new shutdowns due to poor margins
  • Military parade-related environmental inspections potentially limiting North China production

The divergence between HRC and rebar performance highlights the manufacturing sector's relative resilience compared to construction, which faces more pronounced seasonal challenges.

Building Materials Market Conditions

The broader building materials sector, which includes rebar and other construction products, faces specific challenges:

• Seasonal demand limitations: High temperatures across much of China significantly reducing construction activity
• Regional trading patterns: Weak spot trading performance reported across multiple geographic regions
• Market momentum: Limited driving force from futures market for spot transactions

This seasonal weakness in construction materials contrasts with the manufacturing-oriented HRC market, which experiences less severe seasonal fluctuations due to its different end-use applications.

What Are the Short-Term Expectations for HRC Prices?

Market expectations for HRC prices in the coming weeks reflect a balance of competing factors, with most analysts anticipating continued fluctuation within the current range rather than a decisive directional move.

Market Sentiment and Expectations

Industry participants identify several factors supporting and challenging HRC prices:

Bullish Factors:

• Low inventory levels compared to historical patterns create supply-side support
• Moderate cost support from raw materials establishes effective price floors
• Potential positive policy signals from the upcoming July Political Bureau meeting

Bearish Concerns:

• Accumulating fundamental contradictions between supply and demand
• Emerging seasonal demand weakness as summer progresses
• Increasing supply pressure as maintenance-related output restrictions decline

This balance of factors suggests continued price volatility rather than a clear directional trend. The potential iron ore surplus impact remains a key consideration for market participants.

Technical Market Analysis

From a technical perspective, several key levels influence market behavior:

Price Support Levels:

• Production cost thresholds create natural buying interest when prices approach breakeven
• Futures market demonstrates resilience at technical support levels despite mixed fundamentals

Resistance Factors:

• Weakening demand limits upside potential beyond recent highs
• Growing supply pressure as maintenance impact decreases creates overhead resistance
• Technical resistance at previous price peaks limits upward momentum

Industry analysts expect HRC prices to continue fluctuating within these technical boundaries barring unexpected policy changes or supply disruptions.

FAQ: Hot-Rolled Coil Market Trends

How are environmental protection measures affecting steel production?

Environmental protection measures are creating multifaceted impacts across the steel supply chain. In Tangshan, China's steelmaking hub, authorities have implemented confirmed restrictions on sintering operations. However, their immediate production impact remains limited due to sufficient inventory levels maintained by most steel mills.

Looking forward, there's increasing discussion about potential crude steel production restrictions in North China related to an earlier-than-usual military parade preparation period. These restrictions could potentially reduce building material supply in the coming months, creating temporary market tightness.

"Environmental protection measures tend to create more market volatility through expectation management than through actual production impacts," notes a senior SMM analyst. "Mills have become increasingly adept at managing production around restriction periods."

What is the relationship between raw material costs and HRC prices?

Raw material costs establish a fundamental floor for HRC prices through their impact on production economics. Currently, this relationship is particularly evident in the coking coal sector, where:

• Coking plants are implementing production cuts due to ongoing financial losses
• Improved shipments are gradually reducing coke inventories throughout the supply chain
• The resulting cost structure maintains moderate support for HRC prices

This cost foundation prevents prices from falling below certain thresholds regardless of temporary demand weakness. When HRC prices approach production cost levels, steel mills typically reduce output rather than operate at sustained losses, which ultimately stabilizes the market.

How do seasonal factors impact the steel market?

Seasonal factors significantly influence steel market dynamics, though their impact varies considerably by product category:

• Construction materials (like rebar): Experience pronounced seasonal fluctuations, with current high temperatures severely limiting building activity and creating an off-season effect
• Manufacturing-oriented products (like HRC): Face more moderate seasonal variations due to their different end-use applications

For HRC specifically, some signs of seasonal demand deceleration are emerging, but the impact remains less severe than for construction materials. This difference explains part of HRC's relative price resilience compared to rebar during summer months. These patterns form part of broader mining industry trends that influence commodity markets globally.

Market Outlook: HRC Price Projections

Short-Term Price Expectations (1-2 Weeks)

Based on current market conditions, HRC prices are expected to continue fluctuating at relatively high levels in the immediate term:

• Price range forecast: Continued oscillation within recent trading ranges
• Downside protection: Limited by cost support and historically low inventories
• Volatility drivers: Policy announcements and environmental restriction implementations

The most-traded HRC futures contract is likely to maintain its current pattern of high-level fluctuation without establishing a clear directional trend.

Medium-Term Considerations (1-2 Months)

Looking slightly further ahead, several fundamental factors will likely determine price trajectory:

• Demand evolution: Critical to monitor how seasonal patterns progress through summer
• Environmental policies: Implementation scope and duration of protection measures around military parade preparations
• Raw material trends: Potential shifts in iron ore and coking coal cost structures
• Inventory development: Changes in stock levels relative to historical patterns

Of particular importance will be the July Political Bureau meeting outcomes, which could signal policy support for infrastructure and manufacturing sectors, potentially providing demand-side support for HRC prices. According to GMK Center, HRC prices have increased in most markets since the beginning of the year, creating a strong foundation for current trading levels.

Key Market Insight: While fundamental contradictions in the HRC market continue to accumulate, the combination of low inventory pressure compared to previous years and moderate cost support is expected to maintain price stability in the short term, with continued fluctuations at relatively high levels.

Industry participants should pay particular attention to the balance between increasing supply (as maintenance impact diminishes) and seasonal demand patterns (as summer progresses) to identify potential inflection points in the current price pattern. The latest iron ore demand insights from major markets continue to provide valuable context for understanding broader steel industry dynamics, as noted by Steel Market Update.

Want to Profit from the Next Major Mineral Discovery?

Discovery Alert's proprietary Discovery IQ model provides instant notifications when significant mineral discoveries are announced on the ASX, turning complex data into actionable investment opportunities. Explore our dedicated discoveries page to understand how major mineral discoveries can lead to exceptional market returns and position yourself ahead of other investors.