China's EAF producers under intensifying cost pressure

Chinese independent electric-arc-furnace (EAF) makers are facing more pressure on steel production recently due to higher production costs mainly caused by rising steel scrap prices, Mysteel Global has learned.

Traditionally, the winter season sees limited scrap availability as the cold weather slows outdoor scrap collecting and processing activities. Moreover, persisting transportation disruptions induced by heavy snow in northern areas of China and temporary COVID control measures in some regions brought further challenges to the collection, processing and delivery of steel scrap, exacerbating the tightness in scrap supply and leading to a rise in scrap prices, Mysteel Global noted.

Despite the recovery in scrap prices, China's finished steel market showed signs of stabilizing, as the recent cold wave sweeping across the country constrained steel demand, thus weighing on steel prices, Mysteel Global understands.

For example, the spot trading volume of construction steel including rebar, wire rod and bar-in-coil among 237 Chinese trading houses under Mysteel's tracking averaged 133,932 tonnes/day over November 28-December 2, or having eased by 3.2% from the prior survey period.

By December 2, Mysteel's steel scrap price index increased by Yuan 15.2/tonne ($2.2/t) on week to Yuan 2,996.7/t, while the national average price of HRB400E 20mm dia rebar nudged up by a small Yuan 3/t on week to Yuan 3,944/t, both including the 13% VAT.

As a result, the price spread between rebar and steel scrap, for example, narrowed to its near three-month low of Yuan 952.8/t as of December 2, down Yuan 8.5/t on week or Yuan 155.8/t on month, according to Mysteel's assessment.

The narrowing price spread saw the average production cost of producing rebar among the 40 independent EAF mills under Mysteel's regular survey increase by Yuan 65/t on week to average Yuan 4,068/t as of December 1.

Accordingly, the increase in production costs, together with weakening downstream demand, has aggravated the losses of the EAF mills, dampening their keenness for production. This is borne out by Mysteel's survey data showing that as of December 1, the capacity utilization rate of the 85 independent EAF steel mills across China retreated from two weeks of inclines, down 2.77 percentage points on week to 52.98%.

Written by Lindsey Liu, liulingxian@mysteel.com

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