SHFE HRC futures recovered from 3,371 CNY/mt on June 24 to 3,497 on June 25, the largest one-day gain in two weeks. The move was triggered by reports that China's State Council is preparing a new round of property sector support measures, including further reductions in mortgage rates and down payment requirements.
Chinese steel demand has been weak through June, with rebar inventories rising 5.2% week-over-week on lower construction activity in the rainy season. However, HRC demand from the manufacturing sector has held up better, supported by auto and appliance production. China's manufacturing PMI at 50.2 still points to expansion, albeit marginal.
The HRC-rebar spread narrowed to 180 CNY/mt, from 250 CNY/mt in early June, as rebar underperformed on construction weakness. This spread compression suggests the steel market is pricing a secular shift toward manufacturing-driven demand and away from construction-driven demand.
On the cost side, iron ore prices stabilized near $100/mt, providing some cost support for Chinese mills. Metallurgical coke prices were flat at 1,950 CNY/mt. Chinese mill margins remain under pressure, with the average HRC mill margin estimated at -50 CNY/mt, meaning over 40% of Chinese HRC capacity is currently loss-making.
The HRC bounce from 3,371 looks like a short-covering rally on stimulus hopes rather than genuine demand improvement. Buyers should not chase this rally. The loss-making environment for Chinese mills typically leads to production cuts, which would support prices. Wait for confirmation above 3,550 before extending coverage.