China's mills, traders build rebar inventories as easing credit averts destocking

Construction steel inventories in Guangzhou are currently around 30% higher than a year earlier, while rebar inventories in Hangzhou are 116% higher on year, according to local traders.

Hot-rolled coil inventories are also around 65% higher on year in Shanghai and double the usual level at Lecong market in Guangdong province, even though demand from manufacturing was less impacted by seasonal wet weather.

The National Bureau of Statistics' China manufacturing purchasing managers' index softened to 50.6 in May from 50.8 points in April, indicating the sector was still showing signs of weakness after lockdowns to contain the spread of the coronavirus in the first quarter.

However amid an easing of credit conditions in China in a bid to shore up business activity, some mills are understood to be offering financing support to smaller traders to help them through the slow season.

"In fact, mills will probably build up their inventories during the quieter period as, compared to traders, their stocks aren't too high and they are flush with cash at the moment," a market source in China said.

Major state-owned trading companies have also been financially helping mills that may be short of cash and, as a result, China's steel sector is not facing the cash flow challenges that steel producers in other regions are grappling with.

Domestic steel margins also remain healthy despite high seaborne iron ore prices. Domestic rebar margins in China stood at $73.53/mt on June 9, wider than $50.72/mt on the same day a year earlier, S&P Global Platts mill data showed.