[SMM Analysis] Significant Inventory Buildup During the Holiday, Post-Holiday Demand Recovery Falls Short of Expectations

[SMM Analysis] Significant Inventory Buildup During the Holiday, Post-Holiday Demand Recovery Falls Short of Expectations

According to the SMM survey, this week, the SMM broad-gauge inventory of HRC in Ningbo stood at 410,000 mt (as of October 15), up 6,000 mt WoW.

This week, HRC prices were in the doldrums, with spot prices falling by 50-100 yuan/mt on a weekly basis. The market trading atmosphere remained moderate during the week, with end-users restocking on an as-needed basis. By the afternoon close on October 17, the most-traded HRC 2601 futures contract settled at 3,204 yuan/mt.

Meanwhile, according to the SMM survey, in the Ningbo spot trading market this week, in terms of prices, the transaction prices of mainstream HRC resources were in the doldrums. By the afternoon of October 17, the closing spot offers stood at 3,280-3,290 yuan/mt. Prices remained in the doldrums during the week, but compared to 3,370 yuan/mt last Friday, the decline was significant, with prices falling by 80-90 yuan/mt. In terms of transactions, trading was mixed during the week. In the first half of the week, due to the recent resumption of work, downstream restocking sentiment was slightly stronger, and low-priced sales were moderate. In the second half of the week, futures were in the doldrums, market sentiment pulled back significantly, and trading deteriorated. In terms of arrivals, the shipping pace of mainstream resources remained stable, with a 7.6 discount for plain carbon in October, representing a MoM decline in supply. However, considering the significant increase in capacity expansion in South China, inventories are already at a high level and continue to experience inventory buildup. There is a possibility of South China cargo being diverted to the Ningbo region. Therefore, overall supply is expected to increase slightly. In terms of inventory, although this week's HRC inventory in Ningbo increased slightly compared to October 9, the total volume is nearly on par with the same period last year. Downstream end-use demand has marginally improved after the post-holiday resumption of work, but the overall strength has not met the expectations of the "October peak season". Looking ahead, downstream consumption of HRC in Ningbo is expected to increase steadily but slightly. However, considering the expected rise in supply, inventories will primarily fluctuate rangebound. Even if there is a drawdown in inventories, the magnitude will not be significant.

This week, SMM released its weekly HRC balance data, showing a slight MoM decline in HRC production. This week, SMM statistics indicated that the social inventory of HRC across 86 warehouses (large sample) nationwide reached 4.2875 million mt, up 191,000 mt MoM or 4.66% MoM, and up 4.66% on a new calendar year basis YoY. This week, social inventory across the country continued to accumulate, with the rate of buildup narrowing. By region, except for a slight inventory reduction in north-east China, other regions still experienced inventory buildup, with east China and north China seeing larger increases.

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