Chinese steel futures prices fell back slightly on Thursday but mainly just as settled into a new level after the sharp increases of the previous day. Market inventories continue to be drawn down at a steady pace, although hot rolled coil inventories have now fallen about as far as they can, Kallanish notes.

On the Shanghai Futures Exchange the October rebar contract closed at CNY 3,673/tonne ($577/t), CNY 54/t lower than Wednesday, while the same contract for hot rolled coil closed down CNY 64/t at CNY 3,737/t. Tangshan billet prices however continued to increase by CNY 20/t to CNY 3,660/t, the highest level since early March.

Chinese steel market inventories meanwhile have continued to decrease, especially for rebar. Total rebar inventories at both traders and mills were down another -6.47% to 9.03 million tonnes according to SMM. This was also -5.7% lower than in the equivalent week of 2017. Trader rebar inventories are in fact still 5.7% higher than in the equivalent period of 2017, but these were also declining at a healthy rate. Trader rebar stocks slipped 6.02% week-on-week to 6.82mt.

HRC inventories meanwhile are starting to bottom out. Total inventories fell just -1.8% this week to 3.24mt, with trader inventories down -2.3% to 2.28mt. HRC inventories are already -22.9% lower than in the equivalent week of 2017, so there is little room for inventories to further decline. The end of the inventory drawdown does mean however that HRC prices are unlikely to see the strong price support seen in recent weeks. That puts more responsibility on rebar and construction steel demand to carry the price rally further.