China's EAF capacity use falls to 7-month low

Average capacity utilization among the 71 independent electric-arc-furnace (EAF) steelmakers under Mysteel's regular survey decreased for the second week last week to 53.47% as of September 23, lower by another 4.47 percentage points on week and hitting a near seven-month low. Behind the decrease was the reduction in output among Chinese steelmakers obeying government directives to restrict production.

The EAF capacity utilization rate was 7.37 percentage points lower on year too, according to Mysteel's assessment.

"The decline in EAF capacity was mainly seen among mills in (East China's) Jiangsu province, as more local steel mills there including EAF producers have trimmed output in response to Beijing's push to reduce energy consumption and intensity among power-intensive industrial companies," a Shanghai-based market watcher said.

Apart from Jiangsu, many other provinces across the country have also intensified the curtailment of local steel output because of power supply shortages, Mysteel Global noted, requesting mills to either reduce or halt their operations.

In tandem, the lower production among EAF operators saw daily steel scrap consumption among the 61 steelmakers under Mysteel's regular survey decrease by 2.1% on week to average 2,953 tonnes/day also as of September 23.

Yet industry watchers say the lower scrap consumption among steel producers doesn't mean their demand for steel scrap has weakened.

With only three days to go before the start of China's National Day holiday over October 1-7, some steel mills - especially EAF makers - continue to replenish some quantities to ensure they have scrap feeds for smooth production during the break, Mysteel's survey showed.

"Despite the stringent curbs being imposed by many local governments, the enthusiasm that the EAF mills have for production remains strong, given the higher profits they're earning now. Therefore, some mills have raised their buying prices to attract more deliveries so that they could hold sufficient stocks for production," she added.

For example, Shagang Group, China's leading EAF steelmaker in Jiangsu, added Yuan 50/tonne ($7.7/t) onto its scrap procurement price from September 27, as reported.

Also as of September 27, Mysteel's steel scrap price index ended two weeks of declines, recovering by Yuan 7.4/t on week to Yuan 3,715.3/t on delivery and including the 13% VAT, according to the database.

Written by Lindsey Liu, liulingxian@mysteel.com

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