Improved margins drive up Chinese EAF production

China's independent electric-arc-furnace (EAF) steelmakers raised their production slightly last week after seeing their losses ease marginally on the rise in prices of finished steel products, Mysteel Global noted.

The average capacity utilization rate of the 87 EAF mills sampled nationwide under Mysteel's survey recovered by 0.36 percentage point on week to reach 50.46% over July 14-20, after falling during the previous two straight weeks.

Most EAF steelmakers across the country were able to make healthy profits when producing during off-peak times for electricity, Mysteel's survey showed, and the uptick in finished steel prices has widened this part of their profits. For example, by July 25, EAF mills in North and East China were earning around Yuan 111/t ($15.5/t) and Yuan 21/t respectively on their finished steel sales.

As of the same day, China's national price of HRB400E 20mm dia rebar had risen by Yuan 58/t on week to reach Yuan 3,884/t including the 13% VAT, according to Mysteel's assessment.

"A few large-sized EAF mills that had previously halted production to cut their electricity usage resumed operation last week," a market analyst based in Shanghai noted.

"Meanwhile, other mills generally maintained their capacity use at a low level because their margins were still negative overall," she added.

For this week, the domestic EAF mills' capacity use is likely to be largely unchanged, Mysteel Global was told.

"Although the spread between the costs of producing hot metal in the blast furnace and using steel scrap in the converter has been narrowing continuously, steel scrap remained less cost effective to steelmakers," the analyst observed.

By July 25, the production cost of hot metal in East China's Jiangsu stood at Yuan 2,594/t, while the overall steelmaking cost with steel scrap was Yuan 2,633/t, also in Jiangsu and both excluding the 13% VAT, according to Mysteel's assessment.

Written by Anthea Shi, liulingxian@mysteel.com

Edited by Alyssa Ren, rentingting@mysteel.com

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