China's EAF producers' margins dip on rising costs

The 18 independent electric-arc-furnace (EAF) mills across China regularly surveyed by Mysteel saw the average margin they earned making and selling rebar last week reverse down to Yuan 361/tonne ($55.8/t), lower by Yuan 12/t on week, the latest survey has found. The mills' steelmaking costs were impacted by the higher prices the makers were paying for steel scrap.

Traditionally, September and October see robust steel consumption as the cooler weather encourages more construction activity, Mysteel Global notes. In the anticipation of better steel demand ahead, some Chinese mills replenished their scrap inventories, according to a Shanghai-based market watcher, which saw some steel mills across the country lift their procurement prices for scrap to encourage more deliveries.

However, scrap traders were not willing to sell at present because of their low scrap stocks at hand, she explained. "Over previous weeks, their concerns about possible scrap-price declines had led some traders to step up the deliveries to steelmakers - which caused trader stocks to dwindle." In any case, the seasonal steel scrap supply tightness in summer also persists in the domestic market, Mysteel Global notes.

Consequently, Mysteel's steel scrap price ended three weeks of decline last week, though as of August 27 it had recovered by a tiny Yuan 3.8/t on a week to Yuan 3,695.2/t on delivery and including the 13% VAT, according to the database.

The dip in steelmaker margins also saw the EAF capacity utilization rate among the 71 EAF steel mills nationwide which Mysteel regularly surveys reverse down after two weeks of inclines, dipping by 0.44 percentage points on the week to 61.16% as of August 26.

"EAF mills in southwest China have continued to struggle with power shortages and have been forced to frequently halt some operations. In addition, some EAF mills in (East China's) Jiangsu province also conducted regular maintenance last week in response to the local government's order to control crude steel output," the Shanghai market watcher commented.

Written by Lindsey Liu, liulingxian@mysteel.com

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