[SMM Operating Rates of Billet Adjusters in September] Limited Room for Margin Improvement, Low Expectations for Production Ramp-up

According to an SMM survey, as of September 31, the operating rate of steel mills using externally purchased billets that mainly produce construction steel stood at 22.58%, up 0.37 percentage points MoM and up 9.01 percentage points YoY.

In September, national construction steel prices moved sideways in a narrow range. As of September 29, the national average rebar price was 3,135 yuan/mt, down 19 yuan/mt MoM.

Supply side, raw material prices remained relatively firm in the earlier period, while spot prices lacked upward momentum, causing losses on production at blast furnace steel mills to widen. Some producers further cut production loads or conducted temporary rolling line maintenance, continuously easing production pressure. Meanwhile, EAF steel mills, which were profitable overall in September, showed improved production enthusiasm compared with the earlier period, maintaining operating hours at flat and off-peak electricity levels, with electric furnace operating rates at mid-year levels. For steel mills using externally purchased billets, margins in early September were mostly around the break-even line, and production enthusiasm improved. However, affected by the mid-September price decline, some producers immediately reduced production loads. In addition, after agents concentrated on restocking before the dual holidays, producers worried about weakening demand later, so operating hours were temporarily maintained, and the operating rate of billet-processing mills changed little MoM.

Demand side, demand was released across regions before the National Day holiday. During the long holiday, logistics and transportation were restricted, so some projects still had purchasing needs after the holiday. In addition, favorable weather in south China in October will accelerate construction progress at end-user projects, but north China will gradually enter winter after October, and demand will enter a phase of seasonal contraction. Overall demand performance may be hard-pressed to match September levels.

Looking ahead, with limited room for improvement in production margins at steel mills using externally purchased billets and a cautious outlook on the market, operating rates at billet-processing mills are likely to remain largely unchanged in the short term.

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

Source: SMM