[SMM survey] Steel mills begin winter stockpiling; will iron ore also see a restocking surge?

Last week, steel mills in north-east China were the first to announce their winter stockpiling policies, marking the start of the traditional winter stockpiling season. With two months remaining until the Chinese New Year, what are the trends in raw material procurement for steel mills? Under the backdrop of the winter stockpiling policies, have steel mills already started pre-holiday inventory replenishment? To address this question, SMM surveyed several representative steel mills in major production areas.

A steel mill in Inner Mongolia reported that due to its inland location and longer transportation cycle, it has already started restocking and has just purchased a shipment of imported cargo.

A state-owned steel mill in Jiangsu reported that there is no concept of winter stockpiling. Procurement is mainly based on long-term contracts, with regular inventory levels exceeding 20 days.

A private steel mill in southwest China reported that the proportion of imported ore used is low. However, considering cost-effectiveness, it is currently comparing the prices of imported cargo and spot cargo to determine which is more suitable. If a suitable cargo is found, it plans to purchase it.

A steel mill in Handan, Hebei, reported that the regular inventory of imported iron ore is currently 10 days. There is no intention to restock at the moment, and the focus is on maintaining the existing inventory. Pre-holiday restocking will be considered around New Year's Day.

A steel mill in Qian'an, Hebei, reported that the mill is currently facing financial constraints, with in-plant inventory maintained at 5-7 days. Given the rising trend in ore prices, it will not consider restocking for now and will increase procurement and inventory based on future price trends.

A steel mill in Tangshan, Hebei, reported that the current in-plant inventory is 3 days. Being close to the port, where port inventory is relatively high, it will restock as needed and will not consider increasing inventory in the short term.

A large steel mill in Shanxi reported that the usual inventory level is 7-10 days. This year, due to poor profits, raw material inventory has been reduced to the minimum necessary to ensure normal production. Currently, there are no long-term contracts, and procurement is mainly based on spot cargo. Considering that winter weather may affect transportation, it plans to increase inventory by 2 days.

A small steel mill in Shanxi reported that winter stockpiling has not yet been considered. Given the average demand for rebar and strip steel, it is uncertain whether production can continue in the future, so it is taking a wait-and-see approach.

In summary, only steel mills far from ports and accustomed to purchasing imported cargo have started pre-holiday restocking. Additionally, to avoid the impact of winter rain and snow on transportation, some steel mills also far from ports have begun to increase inventory slightly. However, most steel mills that primarily engage in spot transactions continue to restock as needed, maintaining low inventory levels.

SMM's comparative analysis of past inventory data revealed that steel mill inventories typically see significant growth five weeks before the Chinese New Year. Based on this year's Chinese New Year date of January 31, significant inventory growth is expected to begin in late December.

Considering the transportation cycle, steel mills purchasing imported cargo are expected to continue procurement. However, according to SMM's daily cost-profit table, most mainstream iron ore varieties still incur losses after arriving at ports. Additionally, with sufficient iron ore port inventory in China, the proportion of imported cargo restocking by steel mills before the holiday is expected to be lower than in previous years. Therefore, the significant increase in pre-holiday restocking is still expected to occur around New Year's Day.