China's EAF steel mills lift output as profits recover

Chinese electric-arc-furnace (EAF) steelmakers ramped up production last week after seeing their profit margins improve, the results of Mysteel's latest survey show. At the same time, their outlook for steel demand turned more positive, sources say.

During April 19-25, the average capacity utilization rate of the 87 independent EAF mills under Mysteel's regular survey increased by 1.42 percentage points on week to reach 50.49% after falling during the previous three weeks.

Over the same period, the operational rates of the sampled mills averaged 65.42%, up by 0.67 percentage point on week, the survey results showed.

"The introduction of new economic stimulus policies recently has helped give market sentiment a boost, driving up the prices of finished steel products," a market analyst based in Shanghai said.

China's finance ministry is stepping up the issuance of its long-term special treasury bonds-the central government had earlier announced it was issuing Yuan 1 trillion ($138 billion) in special ultra-long term treasury bonds to support some key sectors, as Mysteel Global has reported-while many cities have loosened limitations on property purchases further, both of which should give a fillip to construction industry activity.

"As such, most steelmakers across the country could make some profits if they used heavy machinery only during off-peak periods for electricity consumption, so they were willing to increase their operating hours," the analyst added.

As of April 25, the profits earned by the 34 EAF mills on the sales of construction steel products made during off-peak times averaged Yuan 35/tonne, according to Mysteel's other survey.

Meanwhile, some mills envisaged steel end-users needing to replenish steel stocks ahead of the Labor Day holiday over May 1-5, so they decided to lift production to ensure they had inventory available, according to the analyst.

However, the increase in steelmakers' production also boosted demand for steel scrap, providing firm support for ferrous scrap prices, Mysteel Global learned. By April 26, China's national steel scrap price index was assessed by Mysteel at Yuan 2,894.9/t including the 13% VAT, higher by Yuan 32.2/t on week.

This means that the EAF mills are incurring higher production costs overall, which is likely to squeeze their profit margins again and make them hesitant to raise production further, the Shanghai analyst warned.

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