China: Steel Mills' Scrap Stocks Hit Near 11-Month High

Steel scrap inventories at the 61 Chinese steel plants including both blast furnace and electric arc furnace (EAF) producers Mysteel canvasses weekly continued to rise to hit a near 11-month high of 3.4 million tonnes over December 20-26. This represented another 6.2% or 197,300 tonnes rise week-on-week and marked the eighth successive weekly climb, according to Mysteel's latest stock survey.

Survey respondents noted the concentrated deliveries to mills over the survey period which lifted stocks to a level sufficient to last the mills for 16.6 days of operation, 1.5 days longer than the prior week.

During the same survey period, China's domestic prices for finished steel continued to soften while scrap prices remained firm, a double punch which increased the EAF mills' production costs and squeezed their margins.

As of December 27, China's national average benchmark price for HRB 400 20mm dia rebar had softened by another Yuan 72/tonne ($10.3/t) on week to hit a two-month low of Yuan 3,824/t including the 13% VAT. On the same day, Mysteel's steel scrap price index nudged down by a tiny Yuan 4.4/t on week to Yuan 2,581.2/t including the VAT.

As a result, the steelmaking capacity utilization rate among the 53 independent EAF producers dropped markedly, down by 3.61 percentage points on week to a four-week low of 60.99%, Mysteel's latest survey shows.

With the upcoming Chinese New Year Holiday over January 24-30, the steel mills' interest in replenishing steel scrap stocks is not as strong as in recent weeks, with some mills, for now, purchasing scrap just as their needs dictate. In addition, some mills are planning to begin the Chinese New Year holidays early and halt operations to avoid further margin losses, Mysteel Global learns from market sources. Thus, scrap prices may stay rangebound in the next few weeks, Mysteel Global predicts.

This article has been published under an article exchange agreement between Mysteel Global and SteelMint.