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North China steel mills cut rebar supplies to the south on lower profits

2018-05-15

As profit margins shrank, many steel mills in north-east China cut supplies of rebar to the Guangzhou market in south China, from April, SMM research found.

Rebar inventories in Guangzhou shrank 5.4% to 1.06 million mt as of Thursday May 10 from 1.12 million mt a week ago, according to SMM data. The week-on-week decline exceeded the 1.5% in the previous week as supplies from the north dwindled. As orders were made before the Chinese New Year (CNY) holiday and as steel mills began to cut supplies in April, this sharp decline was not seen till May.

Liaoning Fushun Xinfugang maintained monthly rebar supplies to Guangzhou market at 40,000-50,000 mt, down from the level before CNY at 90,000-100,000 mt in winter. It is likely to continue its control of supplies to Guangzhou if profits remain poor, the steel mill told SMM. The cut volumes were channelled to the local market or the bigger north-China market.

Liaoning Lingyuan Steel suspended its rebar supplies to Guangzhou after the CNY holiday. The suspension contrasts with supplies of 50,000-60,000 mt in winter. Most of Liaoning Lingyuan's supplies are channelled to Shenyang in Liaoning province in the north, Beijing and Tianjin.

Liaoning Jinzhou Jinxing Steel halted its rebar supplies to Guangzhou in May and moved resources to the local and Shenyang market. The mill shipped some orders that made before the CNY holiday, in March-April. Its monthly supplies of rebar to Guangzhou stood at 60,000-80,000 mt during winter.

Hebei Chengde Steel currently delivers 5,000-10,000 mt of rebar supplies to Guangzhou, compared to 70,000-100,000 mt during winter. As of Monday May 14, its offers in Beijing were made at 3,950 yuan/mt on estimated weight, while offers in Guangzhou were made at 4,100 yuan/mt on actual weight and 3,980 yuan/mt on estimated weight. With transport costs of 220 yuan/mt, profits in Guangzhou would be 190 yuan/mt lower than those in Beijing.

Despite the decline in supplies from the north, rebar prices in Guangzhou are likely to be under pressure for an extended period, as the upcoming rainy season weighs on demand and as inventories remain at highs.

As of Thursday May 10, rebar inventories in Guangzhou and Shenyang stood at 1.06 million mt and 319,000 mt, respectively, more than twice of the levels seen in the same period after the CNY holiday last year. This exerted much pressure on spot prices.

Despite growing supplies, inventories in Shenyang fell for eight consecutive weeks as the warmer weather bolstered local consumption. SMM expects the robust demand to provide support for rebar prices in Shenyang.

Source: SMM