Chinese steel inventories soar to strain capacities

Chinese mill steel inventories have soared to record levels as the coronavirus outbreak impeded deliveries and sales, forcing mills to get creative on storage and to cut output and export prices.

China's steel inventories typically peak in late winter, but mill inventories this year have exceeded previous highs back to 2016. Mills held about 10mn t of steel in the week to 13 February, 25pc higher than the previous five-year high in February 2017, according to industry data.

Rebar inventories across mills rose by more than 1mn t to exceed 6mn t this week. Previous highs in the five-year data have never exceeded 4mn t.

"The pressure is really huge with all steel product inventories continuing to rise," a north China mill official said. Long steel producers face the greatest strain. Some rebar producers have rented external storage sites or are leaving shipments at ports, wharfs and on ships, market participants said. A north China mill is storing its wire rods in fields, four coils deep, after exceeding its storage capacity.

The high inventories and stalled sales have lowered Shanghai rebar prices to near two-year lows at 3,400 yuan/t ($483/t).

There is nearly no space left to store steel on site at mills or at the port in Guanzhou, south China, market participants said. Cargoes on ships are waiting to be unloaded. More than 600,000t of steel in east China's Hangzhou city are waiting to be unloaded.

Flat steel producers are faring a little better, with most having some storage space available or have better turnover as customers restart operations.

China's warehouse steel stocks rose by 16pc to 19mn t in the latest week, in line with the trend for traders' stocks to peak at about 20mn t in late February or early March ahead of spring construction demand. China's total steel inventories rose by 17pc to exceed 30mn t from last week, according to industry data that includes rebar, wire rod, hot-rolled coil, cold-rolled coil (CRC) and plate.

Mills warned in early February that they would be forced to cut output if logistics do not improve. Output cuts accelerated this week with transport restrictions still strict.

Data for a subset of mills showed a 4.6pc decline to around 9mn t output in the week to 13 February, a China-based analyst said. Rebar and wire rod output accounted for most of the decline, in line with storage concerns. Only CRC output increased.

China's iron and steel association's 10-day production data for major mills usually lags by several weeks, with the latest showing late January output stable at 1.99mn t/d.

By Chris Newman and China staff