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China's high steel inventories likely to weigh on prices in coming weeks: sources

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China's high steel inventories likely to weigh on prices in coming weeks: sources

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Steel inventories with traders at China's two major steel trading hubs remain high from year-ago levels, and as the seasonal demand variation kicks in, stock levels are expected to trend upwards in the coming weeks, which can add pressure to Chinese steel prices, market sources said.

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Steel inventories held by traders in the eastern and southern regions of China as of June 10 are higher than levels during the same period of 2019, the sources said.

Due to a nationwide, pandemic-led lockdown in early 2020, China's steel inventories were unusually high in the first half of 2020, so 2019 statistics present a more meaningful comparison.

On June 10, rebar inventories in eastern Hangzhou were 96% higher than in the same period of 2019, local traders said. Inventories on June 10 dropped about 1% week on week, decelerating from a 3% decline the previous week, indicating demand slowed because of the rainy season, some sources said.

On the same day, long steel inventories, comprising mainly rebar and wire rod, in southern Guangzhou, were almost at the same level as early June 2019.

In a bid to contain local COVID-19 infections, local transportation was slightly affected, which led to a delayed arrival of new materials to warehouses, some sources said. They expected inventories to increase in the following weeks partly due to seasonal factors, and partly as transportation activities gradually return to normal.

Meanwhile, hot-rolled coil inventories, an indicator of flat steel market, increased by 27% in eastern Shanghai and 80% in southern Lecong compared with the levels in early June 2019. HRC inventories in both markets were up 2% from a week ago.

Spot trade slows

Some market sources said transactions in steel spot markets have slowed in general, partly as the rainy season along the Yangtze river dented long steel demand, and partly because markets expect strong steel production to weigh on the steel prices later in June or in July.

S&P Global Platts Analytics expects China's daily crude steel output to hit a fresh record high at 2.39 million mt/day in May, up 1% from April and 11% year on year. Daily output is likely to have stuck to a similar level in June.

However, some sources said chatter about steel output cuts and further tightening of exports were still circulating in the market, which could continue to support market sentiment in June, and prevent steel prices from any large drops.