Apr 30, 2020
China's rapid steel stockdraw adds support
2020-05-05
China's construction and manufacturing sectors have recovered fast enough from the impact of the Covid-19 outbreak to work down its record steel inventories to more typical levels, providing one of the few supports to global steel markets.
Steel inventories held by steel mills and trading firms fell by 2mn t to 26.3mn t this week, the fastest weekly fall in at least two years, industry data show. It shows China's peak spring construction season is in full swing, boosted by government-funded infrastructure and private-sector real estate projects.
October rebar futures added to gains after the inventory data was released, closing up by 2.1pc at 3,367 yuan/t ($477/t). October hot-rolled coil futures rose by 1.7pc to Yn3,211/t.
China's construction demand was largely frozen until early March, lifting total steel inventories to a record 40mn t. Migrant workers were prevented from returning to construction sites in China's main cities until coronavirus lockdowns began to ease in March.
April 2019 inventories finished at 17.2mn t, 9mn t lower than this week's level. In China's 1bn t/yr steel market, 9mn t of steel is 1pc of the total year output.
"Steel inventories at mills and traders started to normalise, after reaching its record level of 40mn t in early March, around 60pc higher than the peak level last years, demonstrating a normalisation of the downstream demand," Brazilian mining firm Vale said earlier this week.
China's flat products demand has been weaker in the face of slower global trade and demand for downstream products. But most of China's steel demand is for long products, and higher construction demand should compensate for the weakness in flats, Vale said.
Construction sites were catching up fast from April to compensate for the delayed restart of projects in February and March. Spot sales this week got an extra boost from sellers restocking ahead of the government reimposing a highway truck toll next week, an Chinese analyst said. This week's rapid draw is within expectations as many downstream buyers rushed to restock ahead of China's 1-5 labour day holiday, a Shanghai-based steel trader said. "Domestic demand especially for longs is really strong in China," he said.
Shanghai rebar was flat at Yn3,450/t ($489/t) ex-warehouse today. The next regional rebar price tracked by Argus is the UAE at an equivalent $459/t ex-works. Seaborne prices range between $403-407/t on a fob basis from China and Turkey or a cfr basis into Singapore.
Another Shanghai trader expects rebar prices to rise further after the holiday.
China's domestic steel inventories could fall to normal levels by August or September, depending on the pace of destocking, a Chinese mill official said.
China is one of the few bright spots for steel markets. Global steel output slumped by 6pc in March. The EU was the hardest hit, down by 20pc a year earlier, with Italy down by 40pc. Japan's government expects its April-June steel output to fall by 26pc against a year earlier. India's electric arc and induction furnaces that account for half of its output remain largely off line, with its steel association forecasting 2020 demand will fall by 7.7pc. Overall US steel capacity utilisation fell to an 11-year low this month.
By Chris Newman and China staff
Source: Argus
