China's steel inventories hit 13-month high amid COVID-19 resurgence

China's steel inventories hit a 13-month high April 20 as the country's steel production continued to climb steadily in the wake of weak demand amid the latest COVID-19 resurgence.

Domestic markets have a mixed steel demand outlook for the coming weeks, as pandemic uncertainty looms over the industry.

Some sources said demand could rebound strongly when the spread of COVID-19 is contained, tackling oversupply, while some others said a demand rebound would be modest and short-lived unless a stronger stimulus is introduced.

China's daily crude steel output increased 0.4% from early April to 2.889 million mt/day over April 11-20, data from the China Iron & Steel Association showed April 27.

China's crude steel output averaged 2.882 million mt/day in the first 20 days of April, up 1.2% from March's daily production level.

Finished steel inventories at steel mills and spot markets monitored by the CISA rose 3% from April 10 and 8.4% year on year to a 13-month high of 33.01 million mt April 20.

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

Supply chain disruptions amid Beijing's zero-tolerance toward COVID-19 has taken a toll on steel end-users in the construction and manufacturing sectors, worsening oversupply, sources said.

China's domestic steel prices, meanwhile, have declined modestly due to a supply glut, with rebar prices in Beijing down about 6% on the year April 26, according to S&P Global Commodity Insights.

Some sources said steel demand could rebound sometime in May and prevent steel prices from sharp declines. Others said a recovery in China's construction and manufacturing sectors was likely to be slower in May and June as the country's lockdown measures are not lifting anytime soon.

China's domestic steel demand would still drop absent COVID-19 resurgence due to a weak, cash-stripped property sector.

"Once most of China has contained the COVID recovery sometime in May, people will be able to see real steel demand, which I'm not so optimistic about," a source said, adding that further policy easing was required for the property sector.