Supply Recovery Meets Demand Gap, Both Factory and Social Inventories Increase

This week, building materials inventory shifted from decline to growth, with both factory and social inventories accumulating. Supply side, annual maintenance work on blast furnaces at some domestic steel mills has been successively completed, and the resulting hot metal increment was released this week. According to an SMM survey, the operating rate of blast furnaces at 242 steel mills was 85.99% this week, up 0.84 percentage points WoW. Demand side, the market was closed for the New Year's Day holiday, traders' shipments basically stalled, normal social inventory warehouse withdrawals were interrupted, and coupled with reduced logistics and transportation efficiency around the holiday, further hindering inventory circulation, building materials inventory accumulated.

This week's total rebar inventory was 4.1708 million mt, up 204,800 mt WoW, an increase of 5.16% (previous: -4.07%), and up 289,100 mt YoY, an increase of 7.45% (previous: +4.62%).

This week's rebar in-factory inventory was 1.4759 million mt, up 64,700 mt WoW, a WoW increase of 4.58% (previous: +0.71%), and up 225,200 mt YoY, a YoY increase of 18% (previous: +16.78%). This week, annual maintenance on blast furnaces and supporting building materials rolling lines at some steel mills ended, and production has now gradually resumed, driving a rebound in building materials production and increased market supply, leading to continued accumulation of factory inventory this week.

This week's rebar social inventory was 2.6949 million mt, up 140,100 mt WoW, a WoW increase of 5.48% (previous: -6.52%); and up 63,900 mt YoY, a YoY increase of 2.43% (previous: -1.07%). During the New Year's Day holiday, the market was closed, traders' shipments basically stalled, and coupled with reduced logistics and transportation efficiency around the holiday, further slowing inventory circulation and turnover. Under the dual effects of persistently weak demand and obstructed circulation, social inventory shifted from decline to growth this week.

Looking ahead, with the New Year's Day holiday over, traders have gradually resumed shipments, logistics and transportation are smooth, and previously accumulated inventory is gradually entering circulation. However, considering the persistent low temperatures in the north, outdoor construction projects have largely halted, and downstream site stockpiling willingness has fallen to a low level. Although construction conditions are relatively lenient in south China, actual purchases are mostly for rigid demand due to funding pressures, making a significant demand surge difficult. Additionally, based on the average inventory buildup period in previous years, sustained inventory buildup is expected to begin 4 weeks before the holiday, so inventory pressure will become prominent from late January.