Most Chinese steel mills have adequate raw material inventory levels
Demand for iron ore in China is expected to be supported in the near term by the resumption of construction sites following the Lunar New Year holidays and the associated increase in steel consumption. This was reported by S&P Global with reference to market sources.
In the first week after the holidays, the domestic market recorded weak demand for rolled products and a drop in blast furnace productivity. In turn, this led to a drop in demand for ore and raw material prices.
However, market expectations are that sentiment will strengthen as construction sites resume operations and amid expectations of political stimulus coming from two sessions of the country's legislature scheduled for early March.
The market expects a recovery in laminate consumption in the spring. For example, after the holidays, demand for rebar in North China increased slightly due to construction needs. And some steel mills in the east of the country tried to shift production from long products to flat products, as the latter enjoyed better domestic and export demand.
According to the China Iron and Steel Association (CISA), total steel production at China's largest steel mills increased by 1.5% to 21 million tonnes between February 11 and 20, compared with the first 10 days of the month. Rolled stocks in the period totaled 18.98 million tons, an increase of 17.6% compared to the same period in 2022.
Chinese market participants are mainly concerned about the post-holiday demand recovery in the short term. However, most of them believe that an oversupply situation does not yet exist. However, steel production may decrease, as several steel mills planned to suspend production at the end of February and beginning of March.
Amid a sluggish market and low margins, steelmakers plan to voluntarily cut production in March. Furthermore, iron ore cargo arrivals at major Chinese ports have not increased recently. Most steel mills currently maintain a good level of iron ore inventory, which will last 7 to 30 days, depending on the location of the plant.
As Compraço previously reported, China's steel mills produced 1.019 billion tons of steel in 2023, an increase of 0.6% compared to 2022. The downward trend in the country's steel industry has therefore stopped after two consecutive years of declining production.
