During the second quarter, hot weather and the rainy season in southern China slowed market activity. At the same time, high production levels and rising inventories increased pressure on prices. Although strong raw material costs prevented sharp price decreases, weak demand limited any sustained upward movement. As the market enters the second half of the year, inventories, production policies, end user demand, and export performance remain the key factors to watch.
Seasonal expectations failed to support HRC prices
Following the export driven strength seen in 2025, China's HRC market entered 2026 with a more cautious outlook. Seasonal expectations supported a brief price increase in late March and early April, but the recovery wasn't sustained as demand remained weak, pushing the market back under downward pressure.
As of June 30, the domestic HRC price index recorded a monthly decrease of 2.18% while showing a yearly increase of 3.98%. During the same period, Chinese HRC export offers remained mainly within the range of USD 490-500/t FOB, while prices generally remained under downward pressure throughout the first half.
During the second quarter, prices failed to establish a clear direction. Strong raw material costs limited sharp decreases, while weak demand and rising inventories prevented any meaningful price recovery.
Production remained high despite narrowing margins
High prices for iron ore, coking coal, and scrap increased production costs during the first half, while lower HRC prices significantly narrowed producers' profit margins.
By the end of June, many producers, particularly in northern China, had begun operating at slight losses. Despite this, most mills continued production to maintain market share, resulting in no significant reduction in supply.
No major new HRC capacity is expected to come online during the second half of the year. However, current loss levels aren't considered severe enough to trigger large scale production cuts, suggesting that supply will likely remain strong.
Rising inventories continued to pressure prices
High inventory levels remain the main factor preventing a sustained price recovery.
By the end of June, China's social inventories of HRC reached 3.4954 million tons, representing an increase of 866,000 tons compared with the same period last year.
As domestic demand continued to disappoint, traders remained cautious about building new inventories, while production stayed at high levels, allowing inventories to continue increasing. The imbalance between supply and consumption has kept visible inventories elevated, maintaining downward pressure on spot prices.
Export momentum weakened as producers sought alternative markets
The surge in shipments ahead of tariff measures during 2025 negatively affected export performance in 2026.
During the January-May period, total steel exports remained below last year's level, prompting exporters to focus on emerging markets and diversify their sales channels. However, increasing trade protectionism and weak global demand are expected to keep exports limited during the second half of the year.
Current market conditions indicate that China's total steel exports in 2026 could remain significantly below 2025 levels.
HRC demand showed clear divergence across sectors
The year 2026 marks a transition for China's HRC market from the export driven growth seen in previous years to a more balanced but also more fragile market structure. During the first half, weaker than expected domestic demand, rising inventories, and slowing export momentum became the market's main characteristics.
In the second half, the global economic slowdown, export uncertainties, and continued high production levels may keep pressure on the supply demand balance. At the same time, investments in new energy and infrastructure, together with demand from the home appliance sector and persistently high raw material costs, could provide limited support to the market.
Current indicators suggest that the price peak for 2026 was largely reached during the first half of the year, while any price recovery in the second half is expected to remain limited. Although strong raw material costs are likely to prevent sharp price decreases, elevated inventories, excess supply, and the absence of a sustained recovery in demand are expected to keep prices under pressure.
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