China continues to draw down steel inventories, but flat-product stocks remain above last year’s levels
Citi’s tracking data show that in the week ended 22 October, apparent steel consumption exceeded production and inventories continued to decline. Cumulative consumption nevertheless remained lower year on year, while hot-rolled and cold-rolled inventories were also above year-earlier levels, indicating uneven improvement across products.
Original source：Citi ResearchFirst published on Unhidea：Original source date：
Key takeaway
Steel supply and demand showed an inventory drawdown this week, but cumulative demand remained weak, and inventory pressures diverged markedly between rebar and flat products.
Inventories fell: what changed in supply and demand?
In the week ended 22 October, China’s steel production under MySteel’s tracking methodology was 7.9 million tonnes, down 0.3% week on week; apparent consumption estimated by Citi was 8.2 million tonnes. Consumption exceeded production for the week, consistent with the decline in inventories.
On 22 October, total steel inventories were 14.5 million tonnes, down 2.2% week on week and 6.9% year on year. Steel mill inventories were 3.9 million tonnes and trader inventories were 10.6 million tonnes, down 2.3% and 2.1% week on week respectively. Inventories fell at both the production and distribution stages.
Year on year, steel mill inventories fell 15.2%, while trader inventories fell only 3.5%. The improvement in total inventories relative to a year earlier was therefore more pronounced at steel mills.
Can one week’s consumption show that demand has recovered?
The comparison window changes the conclusion: this week’s apparent steel consumption fell 7.7% year on year on a Gregorian-calendar basis, but rose 12.1% on a lunar-calendar basis. The two methods of aligning the periods point in opposite directions, so the weekly reading needs to be considered alongside cumulative performance.
From the start of the year through 22 October, cumulative apparent consumption was 352.9 million tonnes, down 3.3% year on year; cumulative production was 354.8 million tonnes, down 3.9% year on year. Both supply and demand were below year-earlier levels, and production fell slightly more than consumption. Inventory drawdowns can occur alongside an overall contraction in demand.
Citi places these high-frequency data against a backdrop of broadly cautious market expectations for a demand recovery. With cumulative consumption still declining, this week’s inventory drawdown is better understood as an improvement in the current balance of supply and demand than as a shift to growth in full-year demand.
Which products face greater inventory pressure?
Rebar inventories are falling faster: stocks were 5.2 million tonnes, down 4.8% week on week and 16.1% year on year; this week’s production was 1.7 million tonnes and apparent consumption was 2 million tonnes. Yet year-to-date consumption remained down 7.8% year on year, with low inventories coexisting with weak demand.
Hot-rolled coil inventories were 4.4 million tonnes and cold-rolled coil inventories were 1.7 million tonnes. Although they fell 0.7% and 0.8% week on week respectively, they remained up 5.0% and 14.9% year on year. Flat-product inventories are also being drawn down, but their inventory pressure relative to a year earlier is greater than for rebar.
Demand performance also differs between the two flat products: cumulative apparent consumption of hot-rolled products fell 6.4% year on year, while that of cold-rolled products rose 1.0%. Cold-rolled consumption is relatively resilient, but inventories remain high; beneath the overall inventory drawdown, supply and demand conditions vary across products.
