Hot-rolled steel social stocks see first YoY rebound after Chinese New Year

China’s hot-rolled steel social inventory rebounded 1.2% on a yearly basis to 2.22 million mt as of Thursday August 9, the first year-on-year increase after the Chinese New Year. 热卷

While cargo arrivals across major markets stayed firm over the week, slow downstream demand in slack season grew the inventory.

On a weekly basis, social inventory extended its increase and rose 2%, marking the fourth consecutive week of gains.

Meanwhile, hot-rolled steel in-plant inventory fell 2.1% on the week to 985,600 mt as mills cut production on environmental restrictions and lower profits.

Sintering machines and shaft furnaces across steel mills in Tangshan were required to cut production by 50% from August 10 to September 12, we learned. This is part of Tangshan’s fresh round of cutback to fight sulphur dioxide, nitrogen dioxide and carbon monoxide pollution.

Profit margins at hot-rolled steel mills dipped some 6% over the week on rising costs of raw materials such as metallurgical coke and steel scrap.

Higher profit of rebar also drove some mills to produce more of such product  in August at the expense of hot-rolled coil. The gap between profits of rebar and hot-rolled steel narrowed to 78 yuan/mt as of August 9, from some 130 yuan/mt a month ago.

The overall volumes, including social and in-plant stocks, rose 0.7% from a week earlier to 3.2 million mt. The figure was 5.1% higher from the same period last year.

Separately, price of hot-rolled steel hovered at highs on the week with buoyance from environmental restrictions, despite slow season. Expectation of high-season demand in the near future also provided support. We assessed domestic average price of the product at 4,299-4,299 yuan/mt on Thursday August 9.

Source: SMM