According to the data of Chinese National Bureau of Statistics, the total production of medium strip steel in August was 7.9 million tonnes up by 22.6%YoY. The production of hot rolled thin strip steel was 2.9 million tonnes up by 39.3% YoY. The production of these two categories put together was 10.8 million tonnes, a new monthly record.
HRC price was increasing since April, which inspired factories to increase output. At the same time, as the raw material price was lower, their profit margin had increased creating bigger space to increase production.
In August, the total output of HRC broke through 10 million tonnes. Although the market price reduced in August, the EXW price was still high as the profit space existed. It has little possibility for the factories to cut the production initiatively. In addition, the export was not good. As a result, the inventories of HRC went high.
The contradiction between weak market demand and increasing steel production and high inventories has becomes really acute in China since September.
Only if the steel manufactories cut the production timely, this severe situation will improve otherwise it would continue to exist resulting in continued downward movement of HRC prices in China in the month of October.