China steel rebar inventories to sustain decline as supply may retreat

SHANGHAI, May 22 (SMM) – Inventories of steel rebar across Chinese steelmakers and social warehouses continued to trend downward this week even as the weekly supply exceeded the highest level last year. 

Rebar production at steel mills has peaked after nearly a month of output expansion. This capped the decline in in-plant inventories of rebar on the week. But the average drop over the past four weeks remained at a high level. 

Inventories at steelmakers have fallen close to levels of the same period last year, which coupled with improved market sentiment amid optimism around China’s political ‘two sessions’, drove up prices of steel finished products. Bullish prospects for steel prices bolstered purchases by traders and facilitated the slide in in-plant inventories. 

The rally in steel prices, however, sidelined some downstream consumers, who are more price-sensitive as compared with consumers that directly purchase from steel plants for the construction of large-scale projects. This slowed the amount of weekly decline in rebar social warehouses as of May 21.  

SMM expects overall inventories of rebar to fall faster next week given the downward potential in production as increased orders for wire rods may prompt steel mills to shift capacity back to wire rods. Environmental production curbs during the ‘two sessions’ will also weigh on the output of blast furnace steel mills. 

According to SMM data, rebar inventories across social warehouses stood at 7.84 million mt as of May 21. This was down 7.8%, or 667,100 mt, from May 14, compared to a decline of 701,900 mt last week. 
Inventories at Chinese steelmakers shrank 11.5% on the week and stood at 3 million mt, the eleventh consecutive week of decline, after dipping 11.3% in the previous week. 

Overall inventories of rebar, including stocks across steelmakers and social warehouses, fell 8.9% and posted 10.84 million mt as of May 21, after a decline of 8.7% in the prior week.

On a yearly basis, overall inventories were 38.9% higher as of May 21, following a buildup of 46.4% last week.