SHANGHAI, May 29 (SMM) – Declines in inventories of steel rebar across Chinese steelmakers and social warehouses narrowed significantly this week, driven by slowdown purchases of end-users amid weakening futures prices, arrival of the rainy season and peak rebar production. However, SMM does not think the slower inventory drops point to declines in overall end-users demand.
Rebar stocks across Chinese steel mills shrank slightly this week with inventories in some mills rebounding. Steelmakers mostly ramped up to full operations and the impact on output from environmental production curbs was little on the back of relatively good air quality during China’s ‘two sessions”.
The start of the rainy season in south and south-west China deterred the shipments from steel mills to construction sites. This, coupled with frontloading purchases by some traders in the previous week and higher offers that sidelined buyers this week, also accounted for the smaller decline in in-plant inventories of rebar.
Stocks of rebar at social warehouses also posted a slower decline, as traders focused on depleting their previous stockpiles and downstream consumers that held some inventories hesitated over stockpiling. Rainfall in some regions also subdued deliveries from social warehouses.
SMM still sees further strength in end-user demand in the near term. According to an SMM research as of May 26, 66% surveyed enterprises said they have new projects in the pipeline and 42% surveyed companies are stepping up construction works.
Continuous downstream purchases and pullback in rebar supply after production peaked will likely see the decline in overall rebar inventories gaining pace again next week, if rebar futures rally and lift market sentiment.
According to SMM data, rebar inventories across social warehouses stood at 7.46 million mt as of May 28. This was down 4.9%, or 381,100 mt, from May 21, compared to a decline of 667,100 mt, or 7.8% last week.
Inventories at Chinese steelmakers shrank 0.1% on the week and stood at 2.99 million mt, the 12th consecutive week of decline, after dipping 11.5% in the previous week.
Overall inventories of rebar, including stocks across steelmakers and social warehouses, fell 3.5% and posted 10.45 million mt as of May 28, after a decline of 8.9% in the prior week.
On a yearly basis, overall inventories were 35.9% higher as of May 28, following a buildup of 38.9% last week.
