The ‘Iron Rooster’ boom that’s driving China’s steel rally

Bloomberg

The unexpected rebound in China’s steel market this year is set to keep rolling because record output by mills has so far failed to replenish inventories as the government cranks up stimulus to boost growth.
Stockpiles of steel reinforcement bar, used in construction, sank for a sixth week, contracting 6.8 percent in the period to April 18 in the biggest drop since October 2014, according to Shanghai Steelhome Information Technology Co.
Rebar futures in Shanghai rallied to the highest in a year on Tuesday, and are up 39 percent in 2016. Spot prices have risen 46 %.
The rally in 2016 follows five straight years of declines and has been a welcome respite for the world’s largest steel industry, which has been grappling with overcapacity, losses and forecasts for a long-term drop in the nation’s demand.
In March, mills in China churned out more metal than any month on record as the economy stabilized, with a surge in new credit spurring a property sector rebound. The surprise rally in the biggest steel producer has also helped to lift global iron ore prices.
“Mills now have their order books filled till July or onward,” said Li Qibao, an analyst at Changjiang Futures Co. in Wuhan, who predicts that prices will go on rising.
There are “unmistakable signs of recovery in demand, with the help of an ‘iron rooster’-style construction boom that has come back at full speed,” Li said, referring to a nickname for China’s previous growth model as the Chinese pronunciation of the phrase translates as ‘railroad, highway, infrastructure.’
Never before have steel inventories been at such a low level around this time of year, said GaoHuaming, director for northern China at Banksteel.com.
Stockpiles of rebar tracked by Shanghai Steelhome stood at 4.675 million tons on April 15. That compares with 6.84 million tons a year earlier and 8.04 million tons the same week in 2014.
Producers and traders, anticipating further losses this year, didn’t carry out their usual seasonal stockpiling in the winter, resulting in an “exceedingly low” level this spring, according to Li Wenjie, general manager at Beijing Shougang Alliance of Xingang Science & Trade Co.