Chinese mills cautious about pre-holiday scrap restocking
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Only eight days prior to China's Labor Day holiday over April 29-May 3, domestic steel mills including both blast-furnace (BF) and electric-arc-furnace (EAF) makers remained generally unenthusiastic about replenishing steel scrap stocks, citing their current razor-thin margins and uncertainties about steel demand in the near term, according to market sources.
Pre-holiday restocking is a common practice among Chinese steelmakers to stock up some quantities of raw materials to ensure smooth production, as the congested traffic during the holiday and traders' temporary leaving for holiday break may result in slower delivery of raw materials, Mysteel Global notes.
"This year's Labor Day holiday spans five days, but the long break hasn't stimulated much restocking activities in the market," a Shanghai-based market watcher observed.
"One reason behind mills' lower appetite for replenishment is their inclination to run raw materials stocks at low levels," she explained.
Though the "Golden March" and "Silver April" period-the traditional peak months for steel consumption-is coming to an end, steel demand from end-users is still lower than market expectations.
"This has intensified market participants' concerns about steel demand in the coming month," she said.
Moreover, lower-than-expected steel demand throughout this month has largely weighed on China's finished steel prices and squeezed both BF and EAF makers' profit margins, or even caused some of them to lose money, Mysteel Global noted.
As of April 19, China's national price of HRB400E 20mm dia rebar under Mysteel's assessment lost Yuan 36/tonne ($5.2/t) on week or a large Yuan 262/t on month to Yuan 4,087/t and including the 13% VAT.
In tandem, by the end of last week, Mysteel's survey among 247 Chinese BF mills showed that only 47.62% of them managed to enjoy some margins, lower by 6.93 percentage points on week or 9.96 percentage points on month.
For those EAF mills, 40 of them under Mysteel's tracking were losing an average of Yuan 71/t on producing and selling rebar by the end of last week, Yuan 54/t more than the previous week. While during the same period last month, they could still earn Yuan 82/t.
"Steelmakers' intensifying financial pressure had forced some of them, especially some independent EAF makers, to cut production to avoid more losses. Therefore, for these mini-mills, there is no need to stock up additional scrap stocks when some of them plan to further reduce their output," the market watcher told Mysteel Global.
Mysteel's survey on 87 EAF makers across China showed that their steelmaking capacity utilization rate decreased to a five-week low of 63.95% as of April 13.
"We have told our suppliers to stop delivering to our plants at the beginning of this week," an official from an EAF mill in Southwest China confirmed.
"Some of our traders had accelerated their pace of delivery over the past two weeks for fear of further scrap price declines. And the delivering volume had largely outpaced our daily scrap consumption. So we decided to digest our in-house stocks first, holding off buying until the market direction becomes clearer," he said.
Another mini-mill also in Southwest China's Guizhou told Mysteel Global that his plant had halted production since April 14.
"We don't consider replenishing (scrap) stocks at present, as we haven't decided when to resume operations yet. Moreover, with the temperature getting higher, the increasing power consumption will raise electric charges higher and further add to our production costs," he complained.
Chinese steel producers' cooling restocking interest led total scrap stocks among 130 BF mills and 57 EAF makers to decrease by 1% and 2.3% on week to 1.96 million tonnes and 1.3 million tonnes respectively as of April 13, Mysteel's data showed.
Written by Lindsey Liu, liulingxian@mysteel.com
Edited by Zhenqi Yang, yangzhenqi@mysteel.com
This article has been published under an article exchange agreement between Mysteel Global and SteelMint.
