China’s largest mills cut steel output by 1.5pc in late February to slow inventory builds. The Output could start to inch up on expectations of a demand rebound in March-April.

China iron and steel association Cisa members produced an average 1.8074mn t/d crude steel over 21-29 February, down by 1.5pc from 11-20 February and down by 7.8pc from a year earlier, Cisa said. This marks the third consecutive decline reported by Cisa, putting output down by 9.3pc from late January and at its lowest level since September.

Cisa data include more than 100 of the country’s largest steel mills.

The decline is within market expectations as mills face heavy supply pressures from record inventories and logistical problems blocking deliveries. Transportation restrictions have eased as China gets the coronavirus outbreak under control, but it will take time for downstream demand to draw down stocks.

Mills’ steel inventories fell from record levels in late February on stronger demand from traders building stocks at warehouses and consumers ramping up operations. Cisa mill inventories fell by 4pc to 20.5mn t over 21-29 February from 11-20 February but remain more than double the levels at the start of the year, Cisa data shows. Mills are running out of storage space, so there are discussions that steel inventory data may be understated if it does not include steel stored in off-site areas.

Construction demand, which is half of China’s steel consumption, could to return to normal as early as mid-March or in April, market participants said. Around 30pc of real estate projects and about 40pc of infrastructure projects have resumed work, and Beijing is asking provinces to speed up infrastructure projects in areas less affected by the virus outbreak, setting a 15 March deadline.

“I think Chinese rebar prices will start to go up from mid-March on more construction projects resuming,” an east China steel trader said. “Another factor is the strong iron ore prices, which are likely to support higher rebar prices as many mills have thin profits.”

Smaller electric arc furnaces (EAF), which account for 10pc of China’s 1bn t/yr steel output, remain mostly shut down but are preparing to restart production in March, a Shanghai trader said. Shanghai rebar prices have held a floor at around 3,400 yuan/t ($490/t) ex-warehouse over the past month after declining by 8pc since 1 January.

Rebar output likely has little room to decline further, with blast furnace-based cuts most aggressive for long products and EAFs preparing to restart. There may be more room for additional hot-rolled coil (HRC) output cuts in early March as large mills like Angang and Shougang have planned maintenance outages in the coming weeks, a China-based analyst said.

Overall steel output will increase in March and is unlikely to decline further, even with a fall in HRC output, an east China mill official said. The blast furnace utilisation rate is steady at around 70pc, so production has probably found a floor at this level until demand shows an obvious pick-up, another analyst said.