China steel rebar inventory shrank 1.4% on week amid weakened demand

SHANGHAI, Dec 3 (SMM) – China steel rebar inventories fell slower this week due to accelerated seasonal weakening of demand.

Inventories of rebar across Chinese steelmakers and social warehouses stood at 6.41 million mt as of December 3, down 1.4% from a week ago and up 35% from a year earlier. The rate of reduction narrowed 3.6 percentage points.

According to SMM data, inventories at Chinese steelmakers rose 167,200 mt on the week and stood at 2.55 million mt, up 7% from a week ago and up 26.6% from a year ago.

In-plant stocks posted faster increase on week. The main reason is that while the production of steel mills remains stable, and end-user demand continues to weaken at high prices, the market willingness for restocking continues to slump.

The accumulation of in-plant stocks is mainly due to the following factors- regional differences and the scale of the mills.

Inventories of steel mills have piled up sharply in North China due to the rapid contraction of end-user demand. However, the rigid demand in East China and South China is not disturbed by the weather, and will keep stable.

The increase in inventories of steel mills without blast furnaces and small and medium-sized steel mills is more significant than that of steel mills with blast furnaces. This is more prominent in East China, where steel mills without blast furnaces (especially with electric furnaces) are more concentrated. The agreement volume of steel mills with blast furnaces and the delivery channels of construction sites are relatively stable, but near the end of the year, most small construction sites are closed or even shut down one after another due to the demand of capital withdrawal, which more impacts the demand of small steel mills for the target, and the flexibility of restocking is also greater. When the market sentiment is negative, the accumulation speed of small steel mills' in-plant stocks is faster.

Inventories at social warehouses fell 257,800 mt on the week and stood at 3.85 million mt, down 6.3% from a week ago and 41.3% higher from a year ago.

Social inventories of rebar continued to decline on week. Although regional demand converged, the release of end-user demand in East China and South China performed well, supporting the overall demand. In addition, the merchants' willingness to destock to withdraw funds increased in December, which also promoted the decrease of social inventories.

Stocks of rebar have reached the edge of increase as the area affected by seasonal disturbance is expanding. Support of fundamentals has gradually weakened with the decline of spot prices. However, this year's cost is extremely high. Iron ore prices rose $49.4/mt from last year, and coke prices also increased nearly 400 yuan/mt from the previous year.

At present, the fundamentals of raw materials are still relatively strong, which supports rebar prices to a certain extent, and steel mills are more willing to stand the prices. There is still no concentrated volume in rebar shipped from North China to South China, and the specifications in East China are still tight. Therefore, the decline of spot prices of rebar is expected to be relatively limited in the near term.