EAF operating rates recovered to 49% after scrap shortages eased

SHANGHAI, Apr 1 (SMM) – A number of electric arc furnace (EAF) steelmakers in China resumed production in the past fortnight as shortages of the raw material—steel scrap—eased.

As of Tuesday March 31, operating rates across EAF steel mills in China stood at 48.64%, up 28.34 percentage points from mid-March and 41.06 percentage points higher than a month earlier, according to an SMM survey.

Eased tightness, coupled with a plunge in steel prices sparked by bearish macro environment, high inventories and weak demand, pulled prices of steel scrap lower, helping some EAF mills returning to positive territory and encouraging them to recover production to normal. That also contributed to the sharp increase in the average EAF operating rate.

The survey showed that about 50% of EAF steel mills that have reopened now can see thin profits and most of them are located in south and southwest China.

About 27% of mills have reached the breakeven point, while 22.7% continue to run at losses. Despite bleak profit status, some EAF mills resumed production to maintain market shares after being shuttered for more than two months.

The resumption of EAF steel mills was also encourage by a raft of stimulus measures by local governments.

More than half of EAF steel mills surveyed by SMM said that they would not scale back operations in the near term, even if profits worsen. That suggests that the average operating rate across EAF steel mills in China is expected to stay at its current levels or inch further higher, which will weigh on steel prices.