[July SMM Billet Rolling Operating Rate] Off-Season Demand Trend Declining, Steel Mills Maintain Low Operating Rates

According to the SMM survey, as of July 30, the operating rate of steel mills using externally purchased billets that mainly produce construction steel stood at 17.16%, down 0.31 percentage point MoM from June but up 0.3 percentage point YoY.

In July, national construction steel prices drifted lower. As of July 30, the national average rebar price was 3,059 yuan/mt, down 46 yuan/mt MoM.

Supply side, coke underwent two rounds of price cuts, but spot steel prices fell rapidly, keeping most blast furnace steel mills loss-making and curbing production enthusiasm, leading to a slight decline in output. Recently, steel scrap prices remained relatively firm, and some EAF steel mills operated below break-even, while destocking speed fell short of expectations, prompting some mills to adjust operating hours. Meanwhile, mills using externally purchased billets continued to suffer losses, and demand was weak amid falling prices; some mills that had previously halted production had yet to resume, and others reduced rolling mill operating hours to modestly curb output. As a result, the overall operating rate edged down.

Demand side, in July, South China and Northeast China were affected by heavy rainfall and flooding, which limited downstream construction progress. East China was hit by typhoons that intermittently disrupted site operations. Moreover, as prices weakened, market trading sentiment turned bearish, leaving the market in an off-season of weak demand. In August, hot and rainy weather in the first half of the month will continue to affect project construction, but demand may recover as weather improves in the second half.

Looking ahead, mills using externally purchased billets are likely to remain slightly loss-making. Given the traditional off-season for demand, operating rates will stay at current levels before any price improvement. However, considering expectations of better demand in the second half of August, their operating rate may rebound from lows.

Chart: Operating Rate Trend of Steel Mills Using Externally Purchased Billets, 2023-2026

Source: SMM