Blast furnace operating rates close to record high in May, likely pull back in June

SHANGHAI, Jun 10 (SMM) – Operating rates of blast furnaces across China’s steel mills averaged 90.9% in May, up 4.5 percentage points from a month ago and close to a record high level of 91.8%, showed an SMM survey. 

Operating rates of blast furnaces at Chinese steel mills (Source: SMM)

The operating rates will likely pull back in June with little upsides as most blast furnace steelmakers have already reached full capacity. Blast furnace steel mills were encouraged to step up production given an average profit of 280 yuan/mt in May, SMM calculations shows. 

In the month to June 10, however, raw materials prices such as iron ore and coke rose more than expected and this squeezed profits margins at steel plants, leading to maintenance at more mills so far. SMM assessed the amount of production to be affected by overhauls in June is greater than the increase in output from the resumption of work after maintenance. This is expected to trigger a decline in the blast furnace operating rates this month. 

According to SMM assessments, prices of iron ore have climbed more than 10% as of June 10 from the average price in May, as compared with a rise of less than 3% in steel prices during the same period. 

On the demand front, the arrival of the rainy season in most southern Chinese regions have dampened end-users consumption, which led to a slight pullback in rebar futures in early June. But SMM still sees strength in demand and improvement of weather in the second half of June will facilitate the release of consumption potential. 

SMM expects some further upward room for rebar prices in June as supply will stem increases. 

In the latest survey, a steelmaker in south China told SMM that it has no plan to undertake maintenance in the near term given healthy profit margins. It also reported brisk downstream demand this year despite the impact of rainy weather.

A steel plant in east China plans to maintain normal operations of blast furnaces while its steel products output may edge lower. It takes bullish prospects for demand and prices in the short term. Raw materials prices will underpin steel rebar prices, said another steel mill in east China.