Hi All, Please see updated IO Health Chart. The biggest take...

Hi All,

Please see updated IO Health Chart.

The biggest take from the chart is the rapid decline of steel inventories; in particular rebar. They are dwindling away at an accelerating rate and it will take some serious increase in production rates to arrest the slide in inventory levels. CNY restocking period is approaching also. Back in Feb this year, they peaked at around 16mt. They currently sit at 4.5mt.

According to SMM, rebar levels are 8.4% lower now than this time last year.

Back on Sep 6 this year, rebar levels were 33% higher than the corresponding time last year.

Therefore, the slide in inventories is well beyond last year's seasonal drawdown level.

Downstream demand appears to be extremely strong. Also, what the chart doesn't show is that rebar margins have almost doubled from 400 Yuan to 800 Yuan is a month (according to latest SMM IO report). There is plenty of incentive for mills to crank up the furnace.

Capacity utilisation levels at mills haven't recovered yet to pre National Holiday Week levels yet. They are hovering just below 80%. That will very likely need to return back after 80% shortly (or else steel stocks will fall to zero), which will put pressure on IO levels at mills and port stock levels. Australian IO deliveries to China have picked up in the last month and this may help ensure IO doesn't get drawn down too rapidly at ports.