China’s steel traders are restocking early and strongly China is into its seasonal restock ahead of construction season, and steel stocks have climbed to match 2014 trajectory to-date (Figure 3). CISA warehouse and Tangshan Billet stocks climbed over the Lunar New Year holiday, but the really solid growth has been steel traders’ stocks. These started climbing in December and accelerated across CNY, heading for at least a 2014 level if not higher. In 2016, steel traders only started to increase stocks in February, and then according to our sources, were annoyed to find they couldn’t get hold of metal as mills had already destocked and order books were committed. Nevertheless, 2016 ended up being a lucrative year for steel traders, with many having reached their annual budget halfway through the year. For the 2017 season, they have evidently dived in early to ensure they hold large metal inventories as construction winds up. Steel traders’ buying has probably aided steel mills in maintaining solid order books through the quiet winter season.
Steel mills stocks low, even though port holdings are high It is not widely recognised, but Mysteel’s survey of steel mill iron ore inventories in China, which is followed closely by the Street, includes the port stocks. It is not just a measure of stocks in the mills’ yards; it also includes all the steel mills’ inventory including the amounts being unloaded at the port. So having the Mysteel survey showing a moderately week 26 days’ supply while the port stocks are elevated implies that mill yards must have been depleted on 9 February when the survey was undertaken. And that is of course what we would expect at the conclusion of the Lunar New Year holiday. So mill stocks (including ports) are not high. Where we have seen a lift though are traders’ holdings at ports, which have climbed to 40Mt in the latest survey. This is 4Mt higher than before CNY and 10Mt ahead of the same time last year. Presumably traders are expecting strong sales in construction season.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
