BEIJING/SINGAPORE, May 14 (Reuters) - Chinese builders have slowed purchases of steel-based materials after prices soared to record highs, but the top steel-consuming construction sector is expected to remain well supported until the rainy season slows activity from June, trade sources said.
The most-traded contracts for construction-grade steel rebar
and wire rod on the Shanghai Futures Exchange have surged close to 40% this year, and over 20% since April 1, amid a stimulus-driven building boom that has helped lift the Chinese economy since late 2020.
But some construction companies are now restraining metal purchases over concerns that prices may be over-stretched.
A Guangdong-based construction firm, which normally replenishes steel product stocks every week, said the company was now buying only 5% of its usual volumes after prices soared.
"We have suspended whatever projects we can suspend," a contact from the company said.
Another builder in eastern Zhejiang province also slowed purchases and is "only buying materials as needed" as it tracks the overheated market.
"These steel prices are beyond the market's acceptance," Zhuo Guiqiu, analyst with Jinrui Capital said，noting that some manufacturers also stopped taking new orders.
Spring is typically the peak season for construction in China as builders return to work after the Lunar New Year holidays and work quickly ahead of the rainy season from June.
Inventories of major steel products held by mills and traders in China have fallen 34% since early March, according to Mysteel consultancy, while apparent weekly steel consumption climbed to 12.5 million tonnes as of May 13 from 9.3 million tonnes on March 4.
However, sky-rocketing steel prices are now constricting demand from the construction sector, which accounts for more than half of China's total steel demand.
With the exception of February, when businesses halted during the week-long new year holiday, China's construction activity expanded at the slowest pace in 13 months in April, data from the National Bureau of Statistics showed.
"Destocking is likely to ease in next week's data," Zhuo from Jinrui added.
In addition to the building boom, government efforts to cut smokestack emissions by closing outdated plants also buoyed steel prices and fuelled a record-setting rally in key steelmaking ingredients like iron ore and coking coal.
But policymakers are now taking steps to prevent the metal sector from overheating.
China's cabinet on Wednesday said that government departments would step up coordination on policies to stabilise the economy and accommodate the fast increase in commodity prices.
Officials in Tangshan, the heart of China's steel industry, also warned its steel mills - which produce more steel than the world's second largest producer India - to maintain market order and safeguard companies' normal operations.
The local government there said it would look into illegal behaviour including market manipulation, spreading rumours and hoarding, and would punish and suspend businesses found guilty.
"No one wants to buy at high cost ... they (users) can not bear it if prices increase further," a salesman surnamed Zhang from a Beijing-based trading firm told Reuters.