Steel production growth has edged lower in the first 10 days of January, while coal burn appears flat YoY at peak levels. This, along with the
wobbly flash PMI data, suggests China continues to be weaker than anticipated.
Steel production rose by ~2%YoY in the first 10 days, which continues the slowdown seen through December. The NBS data were actually quite a bit stronger than the CISA data in December, although the weakening price of raw materials suggest these numbers currently reflect reality.
Iron ore port inventories have risen quite a bit in the last month or so, both in absolute terms and in days of use. Given they were coming from a low base, they could now be considered at more normal levels. But the rate of change is important, especially given seaborne supply is usually seasonally slower around this time of year.
The fall in the iron ore price towards $120/t makes sense in this context. While a lack of stocking demand heading into Chinese New Year is also affecting buying, the pulse of demand after the holiday will be critical to whether iron ore holds at decent levels or caves further. At this stage its worth staying cautious.
Coal burn growth is also flat in the first 10 days. This maybe a function of surveyed power plants reaching capacity, but given the other data, it also suggests activity is weak.
Stock levels at key power plants are currently at 19 days of consumption. This is not particularly high in terms of current consumption, but is very high in terms of consumption rates in a couple of months.
This is why coal prices are already retreating in China and do have the potential to go quite a bit lower if consumption growth doesn't improve.
