South Korea: Major steel mills record fourth consecutive weekly drop in scrap inventory

The collective steel scrap inventory, held by eight South Korean steel producers, stood at 884,000 tonnes (t) this week, reflecting a significant decrease of 62,000 t or 6.5% compared to the previous week. This marks the first instance in two months, since the fourth week of October, that the inventory held by these companies has fallen below 900,000 t. The decline in inventory, which commenced in December, has been steadily intensifying each week, culminating in a substantial 6.5% reduction this week.

The decline in inventory is particularly pronounced among steel mills in the southern region.

Region-wise inventory

Southern region: This week, inventories for steel mills in the southern region reached 391,000 t, marking a decrease of 41,000 t, or 9.5%, compared to the previous week. Notably, despite a slight increase in POSCO's inventory, the reduction in inventory levels at rebar steel manufacturers in the Busan-Gyeongnam region has been more substantial.

The combined inventory of Daehan Steel and YK Steel witnessed a notable decline of 14.7% compared to the previous week, while Korea Steel experienced an approximately 11% reduction. Furthermore, the combined inventory of the four Busan-Gyeongnam rebar steel companies, including Korea Special Steel, saw a decrease of more than 14% compared to the previous week. Hyundai Steel's Pohang plant also reported a significant inventory decrease of over 20%. In contrast, POSCO's inventory increased by 1.5% compared to the preceding week.

Central region: In the central region, steelmakers collectively held inventories at 493,000 t, indicating a 4% decline from the previous week. Specifically, Hyundai Steel's Incheon plant reported an 8.3% decrease in inventory compared to the previous week, while the Dangjin steel mill's inventory remained unchanged. Dongkuk Steel experienced a 3.3% reduction in inventory, and Hwan Steel saw a decrease of approximately 13% compared to the previous week.

It's noteworthy that, in both the central and southern regions, steelmakers with relatively small inventories exhibited significant declines, although the magnitude of the decrease was comparable across the board.

The ongoing decline in inventory is anticipated to persist at a similar rate until the year's end, albeit with a slight moderation. This moderation is attributed to the expected reduction in scrap consumption, as most steel manufacturers have scheduled factory closures for the remainder of the year. Despite the fact that distribution and receipt volumes are not substantial, the cessation of consumption has led to the accumulation of scrap; otherwise, the rate of decline had been slower.

As the revelation of inventory declines coincides with three consecutive weeks of low prices, there is a growing sentiment in certain market circles predicting a price rebound at the outset of the new year. Nevertheless, guaranteeing such a rebound remains challenging. Despite the ongoing decrease in inventory, current levels still surpass the annual average, raising the possibility that the decline in inventory may plateau or even cease starting from the following week.

The current elevation in inventory is a result of the typical year-end decrease, causing the present inventory levels to exceed those of the same week last year. Currently, the combined inventory of eight steel companies is approximately 25% higher than the corresponding week in the previous year. Notably, the inventory of steel companies in the Busan-Gyeongnam region is markedly elevated, standing at 130% higher than the same week last year.

While the y-o-y ratio has been gradually diminishing in recent weeks, indicating a more accelerated decline in current inventory compared to previous periods, it is essential to recognise that the overall reduction remains relatively moderate in comparison to historical trends.

Note: This article has been published in accordance with an article exchange agreement between SteelDaily and SteelMint.