China steelmakers cut output but inventories rise ahead of holiday

China's major steel producers decreased crude steel and pig iron output in mid-September, yet finished steel inventories skyrocketed to their highest level in nearly a year ahead of the National Day holiday, sparking concerns about additional stockpiling. According to a report by the China Iron and Steel Association, daily pig iron and crude steel output at affiliated mills averaged 1.77 million metric tons and 1.922 million metric tons from September 11-20, marking a 1.4% and 0.1% decline from early September.

These figures also represented a 7.4% and 7.3% reduction compared to the same period a year ago. Consequently, the average daily pig iron and crude steel production from September 1-20 was 1.783 million metric tons and 1.923 million metric tons, down 1.5% and 0.8% from August averages, and 6.3% and 7.6% lower year-on-year.

Despite the output cuts, finished steel inventories held by monitored mills reached 17.08 million metric tons as of September 20, a 5.1% increase from the end of August and an 11.7% rise compared to the prior year. Several mill sources cited a weaker-than-anticipated seasonal demand recovery in September, a period traditionally characterized by high consumption in China.

"The seasonal demand improvement in September has been subdued this year," commented a mill source. "Although steelmakers have reduced output to varying degrees, the domestic steel demand remains under pressure, while escalating coking coal and coke prices continue to erode steelmakers' profit margins. The magnitude of the output reductions is relatively limited, offering only minimal support to steel prices."

A second mill source forecasted that finished steel inventories would persistently rise in early October as trading activity diminishes during the China National Day holiday, spanning October 1-7. This could potentially exert downward pressure on the market post-holiday. Other mill sources and traders indicated that domestic end-user demand for hot-rolled coil and rebar in September was weaker than the previous year.

They also noted that, with no substantial economic stimulus measures anticipated for the remainder of 2026, steel consumption is unlikely to rebound significantly in October. However, some mill sources and traders asserted that China's steel exports remain strong, serving as a buffer for the domestic market and potentially limiting the downside for steel prices in October.

These sources highlighted coking coal market developments as a key risk to monitor in October. If coal supply improves marginally and prices decline, steel prices could face downward pressure amid weak demand fundamentals. On September 24, Platts-assessed domestic hot-rolled coil (HRC) and rebar prices stood at Yuan 3,320/mt ($495/mt) and Yuan 3,090/mt, respectively, a Yuan 80/mt and Yuan 30/mt decrease from the end of August. Platts is a division of S&P Global Energy.