While rebar inventory expanded its decline in June-July as operations picked up across construction sites, stocks are likely to accumulate in August as high temperatures weigh on demand.
However, we does not expect downstream demand to fall sharply in the short run as sites in east China will continue to accelerate operations in order to improve cash flow.
Rebar prices are likely to see downward room in the near term as high profits at mills grow supply. This is despite some impact from environmental cutbacks.
Downstream demand grew more than expected this month in Jiangsu and Zhejiang provinces with most construction sites stepping up operation in anticipation of higher temperatures next month. Sites only stopped operation for a day when tropical storm Ampil hit Shanghai, SMM learned. The impact from the rainy season was limited as there were fewer rainy days this year.
Rising prices of raw materials are likely to affect operation at those sites. Local governments also started to ban in-stream excoriation of sand and gravel this year on environmental concerns, and this drove up prices.
In Guangzhou, Guangdong province, most sites resumed normal procurement of raw materials as cash flow issues eased. But stricter environmental restrictions weighed on their operations.
Supplies of sand and gravel also occurred in Heyuan city of Guangdong, which was more serious than shortages in Jiangsu and Zhejiang. Some projects suspended as a result of shortages, we learned.
In Shandong province, long-term environmental inspections continued to impose production cuts on sites in some key areas. Overall operating rates stood at low levels, with some projects delaying and extending their construction duration.
Operation at sites in Sichuan and Guizhou provinces, as well as in some northern areas, also slowed this month, given financial issues at sites and high temperatures, we learned.