Steel Mills Continue to Restock Iron Ore Inventories Pre-CNY

SHANGHAI, Jan 11 - SMM surveyed 120 steel mills and found that stockpiling for the Chinese New Year holidays decreased sharply compared to the same period of past years. Inventories of imported ore averaged 23.3 days of production in December, up 1.9 days from November.  The inventory of domestic ore was sufficient to 14 days of production, an increase of 1.6 days from November.  In the same period last year, the average inventory days of imported ore and domestic ore at steel mills were 27.1 days and 16.5 days, respectively. According to the survey, the most obvious increase in inventory in December was seen in north-west China. Most steel mills have completed about 80% of their inventory replenishment. But iron ore inventories are still at low levels.

1. Some loss-making steel mills have plans for blast furnace maintenance in January, so they have reduced their inventories.
2. Cash-flow issues at the end of the year have constrained raw material purchases.
3. Since November, iron ore prices have continued to rise driven by the bullish macro news, weakening purchases by steel mills.

Some steel mills will continue to restock inventories in mid-January amid current low inventories and the absence of output cut plans.

Pig iron output

In January, the pig iron output of the 120 major domestic steel mills surveyed by SMM continued to increase slightly. The output of pig iron in December rose by only 510,000 mt or 1.1% from November.  The output growth was mainly contributed by east China, where some blast furnaces resumed production after maintenance.  Some steel mills in south-west China, south China and east China plan to conduct maintenance at blast furnaces in January. Pig iron output is thus expected to decline slightly in January.

Raw material utilisation

According to the results of SMM survey in December, the using proportion of sintered ore continued to rise by 0.1 percentage point from November. The use ratio of lump fell, while that of pellet increased.  Compared with lump, pellets are more cost-efficient.

In January, most steel mills will use sintered ore which is most cost-efficient, followed by pellet and lump.