High frequency China: power and steel strong

Both the steel production and coal inventory data suggest that conditions have been good for bulk commodities in August. The ongoing strength in steel production should keep iron ore prices strong, with a seasonal fade out unlikely to happen unless there is a very abrupt turn for the worse. And while Chinese coal prices have fallen further more recently, the rapid draw in stocks suggests this should be reverse soon.

The strength in steel production is particularly impressive. While production rates are down a little from the start of the month, this is normal.  What isn't normal is the growth relative to last year, which stands at ~9%YoY.

The draw down in coal inventories suggests that coal burn is very strong, partly aided by hot weather, but underlying activity looks decent as well.

The fact that prices and stocks are falling suggests this destocking is to some degree voluntary, with anecdotal evidence suggesting Chinese utilities aren't convinced stronger power demand is anything other than weather related.  When things cool down, it seems they will make their assessment on stock needs.

To me it looks like they have gone too far.  Inventory in terms of days of consumption is low today, but very low relative to peak winter consumption rates.  Utilities will need more supply for higher consumption rates and for higher stocks, which is unlikely to be forthcoming unless prices move materially higher.