High-frequency China: Steel and coal struggle mid-February

While coal burn looks to have edged a little higher in mid-Feb, growth rates remain low.  Steel production data from CISA showed the first YoY decline since September 2012, with inventory at large mills continuing to build.

Steel production as estimated by CISA slipped 4.8% from early Feb levels and is down 2.2%YoY.

Steel production since the start of 2014 wasn't particularly strong, rising 3-4%YoY, so the base level isn't particularly high.  It does, however, appear that inventory levels remain high, with inventories at mills and traders continuing to rise despite production cuts.

The level of steel production estimated by CISA is likely to be a little lower than reality, with production from small mills underestimated due to underreporting in December affecting estimates at the start of the year.

This means the level of steel production is likely to jump sequentially into March.  But importantly, it doesn't appear that the underestimation of steel production this year is significantly different to last year.  That means YoY comparisons are valid. And on that basis, production is weak.

One way to gauge the degree of underreporting of small mills is to look at their contribution to the total.  CISA mills share of production has again risen in November-February, but is similar to that seen in late 2012-early 2013.

Coal burn rose 3%YoY in mid-February, although this comes after 40 odd days of YoY declines.

There are other signs that coal demand has picked up a little, with coastal freight rates also rising, albeit off a very low base.

At this stage this isn't too much to get excited about and generally suggests electricity demand remains slow.