Hot Rolled Coil Sheet Supply and Demand Relation

Since 2024, the hot rolled coil market has basically shown a situation of strong supply and weak demand. By May, demand performance was less than expected, while supply continued to remain high. Against the backdrop of supply and demand changing in opposite directions, the price of hot rolled coils is under significant pressure, and there may still be downward space.

According to the statistics of Zhuochuang Information, it can be seen that the supply and demand of hot-rolled coils have been increasing year by year in the past four years, while the growth rate of demand has been relatively slow. In 2024, there has been a certain degree of decline compared to 2023. Against the background of supply continuing to increase while demand stagnates or even declines to a certain extent, the gap between market supply and demand - the supply-demand gap - has gradually widened. Specifically, from January to May 2024, the supply-demand gap of hot-rolled coils remained at a level of over 11.6-13.9 million tons. To better compare the relationship between changes in supply and demand and the price of hot-rolled coils, Zhuochuang Information introduced the concept of the ratio of supply and demand to the month. By comparing the direction of changes in supply and demand to the fluctuation of hot-rolled coil prices, it can be seen that most of the time, the direction of changes in supply and demand is negatively correlated with the price of hot-rolled coils. From Figure 2, it can be seen that when the supply and demand gap is negative on a month on month basis, that is, when the supply and demand gap decreases, the price of hot-rolled coils often shows an upward trend. However, when the supply and demand gap increases on a month on month basis, that is, when the supply and demand gap expands, the center of gravity of hot-rolled coil prices often shifts downwards. The main reason why this relationship is relatively stable is that when the supply-demand gap narrows, it often means that the contradiction of oversupply in the market is alleviated. Whether it is an improvement in demand or a reduction in supply, it greatly alleviates the pressure of supply and demand on prices, thereby driving up market prices; When the supply-demand gap widens, it means that the contradiction of oversupply in the market is heating up. If there is more supply and less demand in the market, it will drive down market prices. As can be seen from the previous text, the market supply and demand relationship will largely determine the price trend of hot-rolled steel coils. It is expected that the supply-demand contradiction in the market will still be at a relatively high level in May, indicating that there is still room for a decline in coil prices.

In terms of supply, due to the monthly import volume of hot-rolled coils being only 50-80000 tons, which is less than 1% of the total supply, the production can basically represent the supply situation of hot-rolled coils. Based on the monthly production changes in the past four years, as shown in Figure 3, it can be seen that the production of hot-rolled coils is basically increasing year by year, and the monthly production in 2024 is operating above the past four years. Specifically, from January to April 2024, the monthly average production of hot-rolled sheet coils was 25.5966 million tons, an increase of 12.27% compared to the average production from January to April 2023. The increase in production drives the market supply to maintain a high level. In terms of production in May, according to statistics from Zhuochuang Information, since the beginning of the year, a total of three rolling lines have been put into operation in China, with a production capacity of 14.1 million tons. All new production capacity in May has been fully debugged, and hot-rolled plate products have been officially produced. The intervention of new production capacity will undoubtedly drive the production of hot-rolled plate coils to continue to maintain a high level. It is expected that the total production of hot-rolled coils will reach around 26.4 million tons in May, an increase of 2.89% compared to April. It can be expected that the supply side will continue to maintain a high-pressure mode in May. From the perspective of demand situation, according to the monitoring of monthly demand changes for hot-rolled coils by Zhuochuang Information from 2021 to present, the demand changes have been relatively flat in the past four years. In 2024, the demand operated at a high level in the past four years. Specifically, the monthly demand for hot-rolled coils from January to April 2024 was 24.6561 million tons, an increase of 5.74% compared to last year's average demand, while the year-on-year increase in production reached 12.27%, with supply growth exceeding demand growth, resulting in a continuous increase in the contradiction of oversupply in the market. From the perspective of market demand in May, with the arrival of the rainy season and the traditional off-season of demand, the demand for hot-rolled coils may show a decreasing trend. It is expected that the demand for hot-rolled coils in May will be at the level of 25.4 million tons, a month on month decrease of 1.74% compared to April.

In May, the supply of hot-rolled coils in the market increased, while demand decreased. The opposite direction of supply and demand changes. The contradictory trend of demand turning left and supply turning right will also drive the widening of the supply-demand gap of hot-rolled coils. As analyzed above, the widening of the supply-demand gap will have a negative feedback effect on prices, and it is expected that there may still be downward space in the May hot-rolled coil market. Considering the uncertainty of macro news, with the release of news, there may be a possibility of a temporary rebound in volume prices. However, in terms of the overall price focus for the month, the main driving factors will still be concentrated on the supply and demand fundamentals. It is expected that the price focus will likely maintain a downward trend in May.