As profit margins shrank, many steel mills in north-east China cut supplies of rebar to the Guangzhou market in south China, from April.
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.
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. We expects the robust demand to provide support for rebar prices in Shenyang.