China cuts CRC output as prices fall to three-year lows

China's domestic cold-rolled coil (CRC) prices have fallen to three-year lows because of a slow recovery in the auto sector, forcing mills with negative margins to make production cuts.

Mainstream prices of Shanghai CRC with 1.5-2mm thickness have fallen by 500 yuan ($71/t) over the past month to Yn3,600/t ex-warehouse on 24 April, sending them down by 18pc this year. Shanghai hot-rolled coil (HRC) prices have not fallen as fast, down by 16pc to Yn3,290/t ex-warehouse this year, narrowing the CRC premium to Yn310/t from a recent peak of Yn760/t on 7 February.

Weak auto demand has been the main weight on CRC prices. China's auto sales had their worst quarter in January-March, falling by 43pc to 3.7mn vehicles, while production declined by 45pc, the China association of automobile manufacturers (CAAM) said.

China's auto plants have largely restarted after the Covid-19 outbreak eased in the country, but demand is not expected to return to year-ago levels until after June, the association said.

Shrinking order books and, in some cases, breakeven or negative margins are prompting mills to plan production cuts of CRC and cold-rolled sheet (CRS) to offset the oversupply.

China's largest steelmaker Baowu Steel plans to suspend the CRS production line at its Qingshan plant in Wuhan city from May, with the restart date unknown. The plant is one of Baowu's four production bases, but it is the only one currently incurring losses, so that is why its CRS production will stop, a steel trader said.

Qingshan has reduced its CRS ex-mill prices by more than Yn700/t in the Shanghai domestic market this year, with 1mm thickness CRS posted at Yn3,900/t on 24 April. This price is Yn110/t higher than northeast China mill Angang's posted price of Yn3,790/t. Angang also sells into Shanghai but its lower costs allow it to sell below Qingshan's prices.

Some downstream consumers that require CRS will need to find third-party processors to flatten and cut CRC to make sheets. "The quality from a service centre's flattening and cutting process is not as good as Baosteel's ex-works level," a Shanghai trader said. CRS prices from other mills like Angang and Shougang might get support from Baowu's production suspension, participants said.

Anyang Steel in central China's Henan province also idled its CRC production line from 20-30 April for maintenance, shedding 20,000-25,000t of CRC supply.

Traders were also planning to reduce bookings of CRC from mills, since some traders had incurred losses as their settlement prices with mills for March deliveries were higher than sales prices in the spot market.

Market outlooks remained negative for CRC amid high inventories. CRC inventories at traders' warehouses last week were higher by 16pc, or 200,000t, from a year ago, industry data show.

source: Argus Media