Maintenance impact wanes as decent profits encourage production of construction steel mills

According to the SMM survey, the impact from maintenance on construction steel this week (8.2-8.8) slightly declined, as some steel mills resumed production after completing maintenance last week. The maintenance impact on rolling lines this week was 1.2764 million mt, down 8,000 mt WoW.

Last week, macro news disturbed the market, with rebar prices rising first and then falling. Specifically, in the first half of the week, strong expectations for the upcoming Politburo meeting and potential production cuts ahead of the September military parade drove market sentiment to a peak, pushing construction steel prices sharply higher. Finished products outperformed raw materials, and per-mt steel profits continued to expand, keeping steel mills' production enthusiasm high. In the second half of the week, after the Politburo meeting concluded, the lack of unexpected statements on real estate or anti-"rat race" competition led to increased exits by bulls and a sharp drop in speculative demand. Finished product prices quickly pulled back, though per-mt steel profits remained above 100 yuan, with most mills maintaining their previous production pace. The fluctuation in maintenance impact on construction steel this week was relatively small.

By region, the SMM survey showed that changes in construction steel maintenance this week were mainly concentrated in central and east China. In central China, some mills put new HRC rolling lines into operation, as demand and profitability for sheets & plates outperformed construction steel, reducing hot metal flow to rebar rolling lines. One mill planned to shut down a bar rolling line. In east China, intermittent shutdowns of rolling lines decreased, with some lines resuming production last week, leading to a slight decline in maintenance impact. Other regions maintained last week’s maintenance status, with no significant changes in impact.

Looking ahead, the market has shifted from strong sentiment to weak reality. Persistent rainy weather in coastal areas and high temperatures inland have affected construction site progress, with downstream end-users purchasing mainly for rigid demand. Trading activity remained sluggish, reflecting typical off-season demand. Inventory-wise, earlier sentiment-driven accelerated goods pick-up by agents accelerated the transfer of in-plant inventory to social inventory. Last week, mill inventories fell while social inventories rose, resulting in slight overall accumulation. With limited demand release during the off-season, inventory pressure may gradually intensify. Short-term spot prices for construction steel may remain in the doldrums. However, given that mills still enjoy profits above 100 yuan per mt—leaving room for compression—production cuts are unlikely to deepen significantly. Maintenance impact on construction steel is expected to continue declining next week. Focus will be on production restrictions and work stoppages in north China around the September 3 military parade, as potential mill shutdowns could increase maintenance impact.