Since the beginning of the year in 2020, "inventory" has been the focus of the Chinese steel market.

On April 10, cargill metals said that from the end of 2019 to the middle of March 2020, China's steel inventory has been on the rise, and the total stock has exceeded the highest ever. According to the report, in mid-march, the total inventory of China's five major steel varieties was once close to 39 million tons, and it was difficult to find warehouses in many areas to continue stacking.

Cargill believes that traders and steel mills should manage large inventories more effectively during the covid-19 epidemic and avoid the costs of simply holding them.

Before and during the Spring Festival in 2020, Chinese steel mills are generally strong in their willingness to increase production, with the rapid growth of steel output, coupled with the seasonal weakening of actual demand, the growth of steel inventories during the Spring Festival exceeded expectations. Due to the covid-19 outbreak, the Chinese steel market has maintained a "semi-closed market" since the Spring Festival. On the one hand, steel companies' inventories and social inventories are piling up, breaking a five-year record. On the other side is the downstream steel industry start, resumption of work generally delayed, slow release of demand. At both ends of the supply and demand, steel mills accumulated inventories and transferred them to steel traders through agreements and winter storage policies. Steel traders either actively or passively assumed the pressure gradually.

In the case of gradual accumulation of inventories, Chinese steel traders, whether passive or active, will cause losses under large inventories: the cost of holding inventories includes storage fees, interest on funds and discounts. For the long association traders, there are still continuous expectations of inventory accumulation in the future.

For the bullish traders, the spot bulls may choose to build a large stock of the spot and hold the goods to be raised. As a result of the expected inventory build-up, csa traders are actually under pressure to sell on a monthly basis. Under certain price expectations, JCC traders will want to sell forward stocks, thinking they are now at a high price.

Cargill says different types of traders seek different approaches. One is that roving is a common method for traders who want to keep their goods in their hands. Traders usually sell the spot and buy the forward with a certain discount to reduce the spot cost price, which not only releases the cash pressure of the spot, but also keeps the forward inventory. However, there are some difficulties in the operation. Because there is not always a suitable forward to sell in the market, and the shift from spot to forward reduces flexibility, traders are unable to ship at the highest price because the forward goods are not available. Second, for traders who have sales pressure and are not optimistic about the future market, they may choose to sell the fixed price forward. The advantage of a fixed forward is that it locks in the price. If the market trend is lower than the fixed price, the trader gains; if the market trend is higher than the fixed price, the trader loses. Third, some traders will sell the site terminal forward floating price, to the settlement period according to the net price to carry out settlement. Assume net price reflected market price truly, no matter rise or fall can be in accordance with market price shipment, accordingly no matter how the market changes trader does not lose do not earn.

For traders who want to take inventory, cargill says, they want a way to make up for the losses they suffer when they take it. For traders under sales pressure, if they cannot accurately judge the market situation, they will easily lose money if they sell at a fixed price in the future.

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