SHANGHAI, Sep 5 (SMM) – Chinese electric arc furnace (EAF) steelmakers have further scaled back operations, as they failed to get sufficient steel scrap to support production and as high costs and lower steel prices kept them on the verge of losses.
An SMM survey showed that the average operating rate across major EAF steelmakers dropped 4 percentage points from a month ago to 56% as of Wednesday September 4. The rate at the start of August was upwardly revised to 60%, from the previously reported 57%, as two more mills were added to the survey.
EAF steelmakers saw a loss of 208.71 yuan/mt on Wednesday, with costs of 3,818.71 yuan/mt, showed SMM calculations based on steel scrap price of 2,240 yuan/mt in Changzhou.
Profit margins across EAF steelmakers failed to recover since losses began in the middle of July, as tight availability bolstered scrap prices and as the escalation of US-China trade tensions, easing of production curbs in Tangshan and weak demand in hot weather substantially lowered spot steel prices. It currently costs 2,300-2,500 yuan/mt to buy 1 mt of steel scrap.
Steel prices rebounded somewhat at the start of September, with brisk spot trades, as news of production curtailments or limitations across various regions improved market sentiment. SMM assessments showed that rebar prices stood at 3,784.5 yuan/mt as of Wednesday, up 68.2 yuan/mt from the lowest in August.
A separate SMM survey showed that the average operating rate across re-rollers, who purchase billets as raw materials to produce steel products, inched up 1 percentage point month on month to 71% as of September 4. This was bolstered by the recovery of plants in Tangshan from production curbs.
Re-rollers remained in slight losses, as billet prices did not fall as much as steel prices.