The social inventories of steel traders in China rose more sharply during the recent Spring Festival than they did last year, but were still at a five-year low. The steel inventories of China’s steel mills saw a smaller increase compared to last year, but combined post-holiday inventories have reached a record high, according to a report by China Metals.

Steel inventories of traders in major Chinese cities reached 13.7Mt by 27 February, a rise of 22.5%, over 13 February.

According to China Metals, “despite…the sharper growth, the post Spring Festival social steel inventories of this year were still much lower than those of the previous five years, which then stood at about 16Mt to 17Mt.”

But the big pressure is on the steel mills, not the traders. China’s major producers’ inventories totalled 16.4Mt by 20 February, up 10.4% from 10 days earlier and slightly higher than the post Spring Festival volume of 2014, according to statistics released by the China Iron & Steel Association.

Monitoring company MySteel believes that the inventories of China’s major steelmakers during the Spring Festival would increase by 10-15% (18-19Mt) by end February. The peak in 2014 was 17Mt.

While steel inventories witnessed 20% growth during the 2014 Spring Festival, the increase this year is estimated to fall short of that figure due to lower operational rates. In fact, surveys show lower utilisation rates during the 2015 Spring Festival when compared with last year’s.

Post-holiday operation rates continued falling this year but climbed last year.

China Metals claims that de-stocking pressure will remain severe in the near term and a major influencing factor on prices, but when inventories begin to fall over the next fortnight and downstream demand increases, prices will get a lift.

Source: China Metals.