Posted on 22 Nov 2022
Chinese traders are less willing to build steel inventories this winter as they expect that demand among end-users will stay weak in the first half of next year, Mysteel Global has learned, while scattered COVID-19 cases across the country are still disturbing logistics and production.
Among the 414 sampled enterprises including 391 traders across major domestic steel markets, only 127 or 31% of the respondents said they were taking the initiative to stock up steel products during this winter, while 158 or 38% replied that they have no such inclination so far, a recent Mysteel survey found. Significantly, compared with the results of the same survey conducted this time last year, this year 73 more companies have chosen not to build winter inventories, the data show.
A long-established practice among steel traders and distributors across China is to use the winter months to gradually accumulate steel – when demand is poor, and steelmakers are more willing to offer discounts – so as to be ready when building activity perks up with the approach of spring. This is generally after the Chinese New Year holiday which in 2023 will end around January 28.
But this year, pessimism about steel demand is proving a major impediment to traders' restocking as clouds continue to hang low over the country's property and real estate development sectors.
According to China's National Bureau of Statistics, the total area of new property projects launched between January and October this year had plunged by 37.8% on year to 10.4 billion sq m, with the area for residential housing projects falling by a similar 38.5% on year to 759.3 million sq m.
"This suggests that steel consumption by the real estate sector will continue to shrink in the first half of 2023," an industry insider in Shanghai observed, adding that in the near future, the market may not hear any news that might effectively stimulate steel demand.
"The optimizations to COVID-19 containment measures recently announced by the central government may give a boost to sales of properties early next year, but even if that happens, demand from construction contractors will not recover until the second half of the year, given the delay between winning contracts and ordering building materials," said a trader in East China's Zhejiang province.
As of November 17, inventories of the five major finished steel products comprising rebar, wire rod, hot-rolled coil, cold-rolled coil and medium plate among traders in the 132 Chinese cities under Mysteel's tracking stood at 14.4 million tonnes, the latest assessment shows. Though this was lower by some 2.1 million tonnes on year, whether the traders' stocks continue to thin as winter deepens remains a moot point.
Despite Beijing's optimized policy, measures including compulsory quarantine for close contacts and restrictions on traffic, especially truck traffic across provincial boarders, are likely to keep impeding logistics and the ability of workers to return to their job sites after the Chinese New Year celebrations in late January, the Shanghai source remarked, saying that these and other factors will continue to disrupt operations on construction sites.
Under this scenario, those responding to the survey generally anticipated that steel prices will lose ground entering 2023 and that traders are likely to suffer wider losses on selling this winter's stocks.
The survey found that among the sampled companies, the average price of predicted for base-size rebars in February 2023 was estimated at Yuan 3,564.5/tonne ($499.4/t) including the 13% VAT, while this month, the country's national price of HRB400E 20mm dia rebar has been standing above Yuan 3,900/t, according to Mysteel's assessment.
Consequently, even though most traders have sufficient cash currently, they have refrained from stocking up steel, the survey showed.
For those companies that do have the intention to build inventories, they are more cautious regarding quantity, Mysteel's data suggest, with only around 15 enterprises planning to stock more than 20,000 tonnes of steel this winter, while in the winter of 2021, about 35 companies planned to restock the same volumes.
On the other hand, 129 or around 31% of the 414 sampled companies will see their steel inventories grow, even though they have no plans for accumulating inventory, since they have signed long-term supply contracts with steelmakers, according to Mysteel's survey.
"For large-sized trading companies like us, even if we don't want to build stocks, we are obliged to take steel from steelmakers as we have in previous years," the trader in Zhejiang explained. "Smaller-sized traders may choose to reduce their steel procurement," he added.
Source:Mysteel Global
