China's EAF-based steel production to rebound in H2CY'24

Mysteel Global: Production among electric-arc-furnace (EAF) steelmakers in China is expected to rebound from the current low level during the present half of this year, driven by the likely easing of operation costs and the potential recovery of steel demand, according to Mysteel's recent market report.

Domestic EAF mills suffered negative margins from time to time during the past six months, which kept them cautious regarding production, as reported. Since the end of May, the EAF mills' output has been falling steadily as their losses on steel sales have expanded rapidly, Mysteel's survey showed.

By mid-July, the average capacity utilization rate among the 87 independent EAF steelmakers under Mysteel's regular tracking was 44.74%, lower by 5.36 percentage points compared with the same period last year, and more than 70% of the surveyed mills were operating for less than 12 hours a day due to the hefty losses.

"Prices of steel scrap and other steelmaking raw materials were more resilient than the prices of finished steel in H1, so the EAF mills had to incur high costs," the report said, warning that "the steelmakers may continue to bear heavy cost burdens this month with scrap supplies being tight in the summer."

However, the spread between the prices of steel scrap and finished steel is expected to narrow once summer recedes, as domestic scrap availability may loosen, which will cause the support for scrap prices to waver, the report predicts.

China is likely to see ferrous scrap supply expand under the stimulus of the central government's trade-in policy for equipment and consumer goods that was introduced by the country's State Council in April, as reported.

Trade-in sales of home appliances and passenger vehicles have both posted remarkable increases during the first half of this year, which means the volume of ferrous scrap recycled from the manufacturing industry is poised to rise steadily, the report stressed.

Meanwhile, steel demand from end-users is expected to recover in H2 this year, which could be another factor encouraging domestic EAF mills to ramp up production, according to the report.

"Considering that multiple incentive policies have been implemented for the real estate industry, the decline in the property market may slow down," it observes. Besides, "infrastructure remains a key investment direction for the government, and the faster issuance of local bonds will likely push the construction of major projects forward," it added.

On the other hand, total EAF production capacity is seen expanding in coming months, which will also contribute to the overall EAF output.

"After the State Council proposed that China's crude steel production from the EAF rout should contribute 15% of total output by 2025, many provinces have formulated detailed plans to expand their EAF production," the report explained, noting that Central China's Hubei, North China's Hebei, and East China's Jiangsu will all see new EAF capacity commence production during this half.

As such, once the cost disadvantages ease, domestic EAF production will increase, supported by the higher capacity and stronger steel demand, according to the report.

Note: This article has been written in accordance with an article exchange agreement between MySteel Global and BigMint.