China: Over 50 Steel Mills Cut their Scrap Buying Prices

Over 50 steel mills across China including both blast furnace (BF) and electric arc furnace (EAF) producers have decided to cut their steel scrap buying prices over the past week by Yuan 50-200/MT ($7.1-28.6/MT), Mysteel Global has learnt. The marked rise in finished steel stocks held by mills amid the Novel Coronavirus Pneumonia (NCP) outbreak has led domestic steel prices and steel scrap demand to decline.

"The production of most BF steelmakers stayed as per normal during the Chinese New Year holiday, but steel deliveries were impacted - firstly by logistics firms closing for the holiday break and then later by highways being closed to halt the infection's spread," remarked a Shanghai-based market watcher.

"In addition, attempts to control the spread led work on many construction sites to restart only from February 10. As a result, the warehouses at many mills are full, forcing these mills to reduce raw material buying prices to save production costs," he added.

As of February 5, stocks of long steel items including rebar and wire rod held by 137 steel mills across China monitored by Mysteel had surged to 6.7 MnT, up 48.1% on year, according to Mysteel's database.

For some independent EAF producers, the plunging profit margins available on their products dampened their enthusiasm to resume normal production. "We planned to return to production on February 10 but we cannot earn any money if we maintain production at present," an official with a mid-sized EAF steelmaker admitted. "So we've decided to postpone resumption and stop purchasing any scrap materials during this period," he told Mysteel Global.

Currently, EAF producers lose Yuan 200-300/MT on their profit margins if they produce rebar, Mysteel Global was told.

As of February 6, the capacity utilization rate of the 53 independent EAF steelmakers across China which Mysteel monitors weekly had collapsed to a one-year low of less than 5% - a miniscule 4.17% -as the vast majority of mini-mills still remained closed, according to Mysteel's latest survey.

As of February 12, China's national average price of HRB 400 20mm dia rebar had retreated another Yuan 5/MT on day to Yuan 3,749/MT while Mysteel's steel scrap price index stayed unchanged at a five-month low of Yuan 2,561.3/MT, both including the 13% VAT, Mysteel's data shows.