China steel inventories hit 13-month high amid COVID-19 outbreak

China's steel inventories hit a 13-month high on April 20 as the country's steel production continued to rise steadily on weak demand amid the latest COVID-19 outbreak.

Domestic markets have a mixed outlook for steel demand in the coming weeks as uncertainty looms in the industry due to the pandemic.

Some sources said that demand could recover strongly when the spread of COVID-19 is contained, allowing the problem of oversupply to be addressed, while others said that the recovery in demand would be moderate and short-lived unless stronger stimulus is put in place.

Daily crude steel production in China increased by 0.4% from the beginning of April to 2.889 million tons per day between April 11 and April 20, according to data from the China Iron & Steel Association on April 27.

China's crude steel production averaged 2.882 million tons per day in the first 20 days of April, up 1.2% from March.

Stocks of finished steel at steel mills and CISA-controlled spot markets rose 3% since April 10 and 8.4% year on year to a 13-month high of 33.01 million tonnes on April 20.

China's crude steel production from late April to early May is expected to be the same as it was in the first 15 days of April, the sources said, as weak steel demand and logistics disruptions in most parts of the country limit production growth.

Supply chain disruptions amid Beijing's zero tolerance for COVID-19 have hurt end-users of steel in the construction and manufacturing sectors, exacerbating oversupply, the sources said.

Meanwhile, domestic steel prices in China eased slightly on oversupply, with rebar prices in Beijing down about 6% from April 26, according to S&P Global Commodity Insights.

Some sources say steel demand could recover sometime in May, preventing a sharp fall in steel prices. Others say the recovery in China's construction and manufacturing sectors is likely to be slower in May and June as lockdown measures in the country are not lifted anytime soon.
Domestic demand for steel in China will still fall if there is no resurgence of COVID-19 due to a weak cash-strapped real estate sector.

“After most of China contains the COVID recovery sometime in May, people will be able to see real demand for steel, which I am not so optimistic about,” the source said, adding that further policy easing is needed for the real estate sector.