China’s steel inventories at major trading hubs continued to remain low as of mid-August, despite a marginal improvement in the crude steel production in August after a decline for two straight months.
Relatively low steel production and falling steel market inventories were signs that both steel mills and traders were cautious about the steel demand in the upcoming months, market sources said.
Steel output cuts are expected to continue through the end of 2022 in a bid to maintain relatively stable steel prices and reasonable profits, some mill sources said.
As of Aug. 19, rebar inventories held by traders in eastern China’s Hangzhou city were down by around 31% from late June and 19% lower from the end of July, according to market sources.
Around the same period, long steel inventories — mainly rebar and wire rod — in southern China’s Guangzhou spot market were down 28% from late June and 9% lower from late July.
Steel inventories in Hangzhou and Guangzhou were also 37% and 23% lower year on year, respectively.
Meanwhile, hot rolled coil inventories in southern China’s Lecong market as of Aug. 17 dropped 12% from late July and posted a decline of 23% on year. On the same day, HRC inventories in eastern Shanghai dropped 5% from late July, although stocks were still around the same level as a year earlier.
Depleting inventories were mainly due to relatively low steel production and destocking by traders. “China’s overall end-user demand in construction and manufacturing sectors actually hasn’t shown much improvement in August, because of extremely hot weather and power shortages along Yangtze River,” a trader said.
China’s daily crude steel output over Aug. 1-10 increased by 3.8% from the July average but was still 12.5% lower from May and 10% below than June level, according to latest data from the China Iron & Steel Association.
The Chinese steel profit margins shrank again in mid-August because of rising steel output, which would be able to limit further output growth during the rest of August, some market sources said.
One mill source based in eastern China said his company actually cut steel output by more than 15% in August due to sluggish local demand and a cautious outlook for the steel demand in September.
In general, major Chinese steel mills are at least not willing to increase the production significantly at the moment, because they know if steel production increases too much amid weak demand, profits will soon turn negative, another mill source in northern China said.
“The situation of low steel demand, low steel production and low steel inventories may continue in the coming months,” the source said.