China steel rebar inventory continued to post faster increase on week amid weakened demand

SHANGHAI, Jan 28 (SMM) – China steel rebar inventories continued to accelerate increases this week as market demand weakened with the approaching of the Chinese New Year holiday, and only a small amount of end-user and speculative demand remained.

Inventories of rebar across Chinese steelmakers and social warehouses stood at 8.35 million mt as of January 28, up 15.7% from a week ago. From the time dimension of the lunar calendar, stocks are up 33.9% from a year earlier.

According to SMM data, inventories at Chinese steelmakers rose 205,200 mt on the week and stood at 3.3 million mt. From the time dimension of the lunar calendar, stocks are up 6.64% from a week ago and up 46% from a year earlier.

In-plant inventories continued to post faster increase on week and the growth rate expanded 1.62 percentage points. In the state of accelerating shrinking market demand, the growth rate of in-plant inventories was far lower than that of social inventories with accelerating shrinking in market demand. Steel mills took more maintenance to reduce production. In addition to the 8.01 percentage point drop in operating rates of electric furnace plants this week, Shaanxi Iron and Steel, Jinnan Iron and Steel and other steel mills also successively issued announcements on production reductions in the first quarter. Output of steel mills in February is likely to continue to decline. Also, there is still a small amount of winter restocking demand and speculative demand in the market in the near term, which promoted the destocking of in-plant stocks to a certain extent. 

Inventories at social warehouses rose 928,200 mt on the week and stood at 5.06 million mt, up 22.48% from a week ago and 27.1% higher from a year ago.

Despite a small number of medium and large project construction sites, most small and medium-sized workers, especially in real estate project construction sites, have already taken holidays ahead of schedule for the Chinese New Year due to the pandemic. The shrinking end-user demand is the main factor for the accelerated accumulation of social inventories.

Rebar supply and demand are in a downward trend, but demand is declining faster than supply. It is expected that the inventories will increase to 13-14 million mt in the first week after the holiday, which is higher than the same period last year. However, considering the subdued market sentiment for winter restocking this year, the self-storage ratio of steel mills is relatively higher, and the cost of steel mills is high, they will like to keep selling prices firm. Therefore, spot prices will be relatively stable in the next two week before CNY, and it is unlikely for steel prices to fall sharply.