SHANGHAI, Jan 8 (SMM) – China steel rebar inventories accelerated increases this week due to the shrinkage of rigid demand.

Inventories of rebar across Chinese steelmakers and social warehouses stood at 6.26 million mt as of January 7, up 5.3% from a week ago. From the time dimension of the lunar calendar, stocks are up 27.8% from a year earlier. Stocks have piled up for two consecutive weeks, and the growth rate expanded 1.4 percentage points.

According to SMM data, inventories at Chinese steelmakers rose 87,700 mt on the week and stood at 2.78 million mt. From the time dimension of the lunar calendar, stocks are up 3.3% from a week ago and up 34.4% from a year earlier.

In-plant stocks posted slower increase on week. Steel mills’ maintenance and reduction of production were relatively concentrated this week, with a slight decrease in output. Rebar prices rose sharply for three consecutive days this week. Speculative demand in the market has increased, which has accelerated the decline of in-plant stocks. In addition, the construction of the end-user medium and large construction projects performed well with continuous demand, and the steel mills delivered more goods directly.

Inventories at social warehouses rose 225,700 mt on the week and stood at 3.49 million mt, up 6.9% from a week ago and 23% higher from a year ago.

Social inventories accelerated increases, and the growth rate rose 6.6 percentage points. This week coincides with New Year's Day and the working day is one day less than usual. The increase in speculative demand led to the increase of social inventories. Moreover, Hebei entered wartime state, construction in Shijiazhuang and Xingtai suspended, leading to the sharp decrease in local demand, and the cold wave continued to expand this week, suppressing the release of overall end-user demand. However, there are concerns about the spread of the pandemic on construction sites in some areas, and the pace of restocking has also slowed down, which also accounted for the increase in social inventories.

The rebar fundamentals continued to weaken. Although blast furnace maintenance has increased, operating rates of electric furnaces have risen rapidly due to high profits. (according to an SMM survey, operating rates of 34 independent electric arc furnace steel plants in China stood at 83.18 as of January 5, up 8.57 percentage points from before New Year's Day) The overall supply will remain stable and rise slightly in January.

The demand side will be affected by the cold weather and pandemic, and the rebar prices kept fluctuating weakly. However, market specifications are still not surplus. The demand in North China is suppressed, while South China is still under normal construction for the time being so the demand is weak but still resilient, and the cost of steel plants is still strong. The downside room of rebar prices is likely to be relatively limited.