SHANGHAI, Apr 16 (SMM) – Chinese electric arc furnace (EAF) steelmakers continued to ramp up operations as of mid-April, prompted by buoyant market sentiment amid demand recovery and a rally in rebar futures. The upsides in operating rates, however, will be limited as prices of feedstock steel scrap also bounced back and squeezed profits at steel plants.
As of April 15, operating rates across EAF steel mills in China (including new samples of independent EAF steelmakers) stood at 63.46%, up 10.87 percentage points from early-April, according to an SMM survey. The operating rates averaged 48.64% at end-March.
SMM expects the operating rates to stay between 65-75% in the near term.
Operating rates across EAF steel mills in China (Source: SMM)
Prices of steel scrap have recovered 100-120 yuan/mt from the lowest level in April in Hangzhou and Guangdong. These compared with price rebounds of only 50-80 yuan/mt for rebar in the month to April 15.
Despite greater increases in scrap prices, about 53.8% EAF steel mills still reported profits of 50-100 yuan/mt as of April 15. More than 75% of the overall Chinese steelmakers that have gotten back to business are running in profits, SMM survey shows.
According to SMM data models calculations, gross margins of steel at EAF steel plants exceeded 200 yuan/mt as of mid-April, based on steel scrap prices of 1,890 yuan/mt in Changzhou (excluding taxes).
Cash-flow burden after the previous nearly two-month stoppage on steep declines in steel prices also drove EAF steelmakers to step up operations and shipments in April after the return of the market.