HRC makers, traders grapple with inventory pressure, tighter cash flows

SHANGHAI, Feb 20 (SMM) – Most steelmakers and traders of hot-rolled coil in China have seen greater inventory pressure and tighter cash flows as the downstream demand has yet to recover significantly amid a coronavirus outbreak, a SMM survey showed as of February 19. 

The financial strain, however, has not posed a significant threat to hot-rolled coil production. SMM remains optimistic about the near-term demand recovery, which is expected to ease the cash burden and send the inventory levels back to normal. 

Inventory of hot-rolled coil at traders currently stands 2-3 times of the normal levels, with stocks at some traders that stockpiled large amounts of cargoes before the Chinese New Year holiday 4 times of the normal levels. 

About 90% of HRC traders are grappling with cash flow issues due to the severe cargo backlog. Some 80% of traders said their current funds could only guarantee payment of long-term annual contracts, while purchases via temporary contracts and tenders have to be suspended. There remained 20% of traders that have difficulties in fulfilling annual purchase agreements.

SMM research found that HRC mills that signed long-term contracts with traders had cash flows able to maintain their operations, while steel plants without long-term agreement with consumers and sell based on spot prices already faced with funding constraints amid falling orders and sluggish downstream demand. 

Well-funded steelmakers increased liquidity by putting some rolling lines into maintenance. Some private steel mills, meanwhile, were compelled to clear inventories at lower prices in order to improve cash flow.