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China Steel Capacity Elimination to Target Intermediate Frequency Furnace Next Year, SMM Reports

iconDec 2, 2016 16:40
Source:SMM
During a onsite survey November 24-27 in Xuzhou, Lianyungang and Suqian, Jiangsu Province,the State Council’s environmental protection team founded low-quality steel and illegal steel capacity.

During a onsite survey November 24-27 in Xuzhou, Lianyungang and Suqian, Jiangsu Province,the State Council’s environmental protection team founded low-quality steel (hereinafter means low-quality steel using scrap steel as raw material, which is melt by induction furnace or rolled steel produced with such low-quality steel) and illegal steel capacity, so executed rectification on such capacities, mainly intermediate frequency furnaces. A few plants using intermediate frequency furnaces in northern Jiangsu have been dismantled. Power supply for plants using intermediate frequency furnaces in northern Jiangsu was cut off to suspend their production. Some intermediate frequency furnaces in southern Jiangsu were also forced to cease production.

Intermediate Frequency Furnace Not Equal to Low-Quality Steel

Intermediate frequency furnace is a type of electric induction furnace, which uses scrap steel as raw material, with low investment, low volume and simple production requirements. It is mainly used to produce rebar, or a small part of section and strip steel.

Economic and trade industry letter 2002 (156) defined that low-quality steel means steel using scrap steel as raw material and melt with induction furnace, whose ingredient and quality is difficult to control and rolled steel produced with the former.

Low-quality steel can be defined by quality and production requirements:

 

 

Main production equipment

Scrap steel raw materials without sorting classification or removal of harmful substances

 

No blowing oxygen blowing argon, can not remove carbon, sulfur and other impurities

No quality inspection system

No continuous casting and rolling, casting on the ground molding.

Allocation of production

No reasonable process layout, there are security vulnerabilities

Environmental protection facility

No waste gas, waste residue, waste water treatment facilities

Product quality

1. Product quality is poor, and does not have the mechanical properties of ordinary steel, with low strength, stiffness and melting point, and porosity, and is easy to break 2. Chemical composition is disordered, and can not play its due role.

Intermediate frequency furnace’s steelmaking technique and quality of scrap steel used to produce steel have improved noticeably. Some steel plants using intermediate frequency furnaces purify by oxygen and argon blowing, or using refining devices. Some plants equipped environmental protection facilities this year given strict environmental protection requirements. Low-quality steel produced by these regular steel plants using intermediate frequency furnace still differs from that produced by small workshops. 
However, among steel plants using intermediate frequency furnaces, those having no steelmaking licenses still take a large proportion. 

Low-quality steel capacity will be eliminated. Those capacities that have been constructed before receiving approval may be also eliminated in light of China’s capacity elimination policy and Anfeng Iron & Steel illegal construction before approval. Some of them are managing to gain licenses. Those already having licenses are still worried as either those with or without licenses were required to suspend production. Standard as to capacities elimination at steel plants using intermediate frequency furnaces has yet to be released. 

China Steel Output by Intermediate Frequency Furnaces Expected to Be 50-60 Million Mt in 2016
According to non-official data, China’s steel capacity at steel plants using intermediate frequency furnaces is about 100 million mt/yr at present. China Association of Metal Scrap Utilization reported domestic scrap steel resources were 160 million mt in 2014. Of these resources, 80 million mt was consumed by steel plants, and less than 20 million mt by foundry industry, with about 60 million mt by low-quality steel plants. Intermediate frequency furnaces almost use 100% scrap steel, so steel output by intermediate frequency furnace is expected to have been 60 million mt in 2014. 

Steel market is brisk this year, and gains for scrap steel were less significant compared to coking coal and iron ore, leaving high profit at steel mills using intermediate frequency furnace. On November 28, prices for 6-8mm scrap steel were RMB 1,660/mt (excluding tax), and electric prices to produce per mt of steel were 650 kWh*RMB 0.5 kWh=RMB 325. When combined with auxiliary material and labor cost totaling RMB 150/mt (including lime, electrode waste and fireproofing material), cost for steelmaking using intermediate frequency furnace was RMB 2,135/mt (excluding tax) or RMB 2,500/mt (including tax). Profit reached RMB 700/mt given rebar prices of RMB 3,200/mt (including tax). 

SMM survey finds steel plants using intermediate frequency furnace maintained operating rates high this year. With environmental protection regulations, their production was affected. So they only produced for 16 hours a day to avoid peak period. Some produced at night to elude examination. Providing that operating rates average 50-60% this year, steel output by intermediate frequency furnace will reach 50-60 million mt. Another reason they did not produce during peak period is high electric price, which will increase their cost. Commercial power prices during peak demand period is RMB 1.1/kWh in Jiangsu, with RMB 0.66/kWh during flat period and RMB 0.32/kWh during low demand period. 

Scrap steel accounts for 78% of steelmaking cost at steel plants using intermediate frequency furnace. The chart below shows that profit at steel plants using intermediate frequency furnace was higher in 2016 compared to 2015. They reported operating rates in 2015 were much lower than 2016. 

Rectification on intermediate frequency furnace especially low-quality steel capacity is in line with environmental protection and capacity elimination policy. Market participants expect steel capacity elimination will put emphasis on intermediate frequency furnace next year. Rebar accounts for 75% of steel output produced by intermediate frequency furnace, which represents 20% of national total rebar output. As steel output by intermediate frequency furnace is expected to be 50-60 million mt this year, any possible elimination of these intermediate frequency furnace steel capacity will significantly affect rebar market. 

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