Chinese EAF steelmakers sharply stepped up operations as margins recovered on higher steel prices

SHANGHAI, Nov 21 (SMM) – Chinese electric arc furnace (EAF) steelmakers stepped up operations significantly this month, as margins recovered to a healthy level after steel prices jumped on robust demand and tight availability.

Operating rates across Chinese EAF steel mills who adopt steel scrap as the major feedstock averaged 65% as of November 20, up 10 percentage points from the start of the month, showed an SMM survey.

Steel prices began a rally at the end of October and saw their gains accelerate in the past week, with the SMM assessed nationwide average rebar price jumping more than 290 yuan/mt from the beginning of last week.

Prices of steel scrap, meanwhile, held stable and were around 2,300 yuan/mt on a tax-excluded basis.

SMM calculations showed that EAF steelmakers could see a profit of 243.5 yuan/mt as of November 20, up 369.5 yuan/mt from November 5.

Tighter supply of steel scrap, however, limited the upside in operating rates at EAF steelmakers, as restrictions on scrap imports went into effect in July.

The current profits are similar to the levels seen in the second quarter, when EAF steelmaker operating rates averaged 78%.

Greater output from EAF steelmakers are set to ease a supply squeeze in the spot market, and weigh on prices, but spot steel prices are expected to remain firm in the short term, given robust demand, especially in the south, and the time it takes for cargoes to enter the markets.