Weak steel prices, virus outbreak to keep EAF mills from reopening

SHANGHAI, Feb 12 (SMM) – Limited electric arc furnace (EAF) steelmakers in China are likely to resume production this month, as sluggish demand amid the coronavirus epidemic outbreak has knocked steel prices to two-year lows and pushed mills into deep losses.

The latest SMM survey showed that operating rates across EAF steel mills in China were almost zero as of Tuesday February 11, compared to a rate of 17% estimated by SMM before the Lunar New Year holiday.

Steel prices in China have been on the decline since the market reopened last week following the extended holiday, due to concerns over demand as Chinese authorities shut factories and construction sites to contain the spreading pandemic.

As of Tuesday, EAF steelmakers in east China could see a loss of 427 yuan/mt on rebar, according to SMM calculations.

The losses are likely to continue through February, as a substantial rally in steel prices is unexpected in the near term, with businesses in China struggling to resume work.

That, together with a shortage of manpower and logistics constraints, is expected to keep most EAF steelmakers closed before March, with the nationwide average operating rate standing below 10%.

Workers are required to be quarantined for two weeks after they manage to travel back to factories. Some EAF mills in east China told SMM that they have a large number of workers from the disease epicenter of Hubei.

Transportation constraints, meanwhile, could disrupt steel scrap supply. Many EAF mills who previously planned to begin scrap procurement in recent days, have delayed their procurement by seven to 10 days.