[SMM Operating Rate for Steel Rolling Mills that Rely on External Steel Billets] Increased Losses in Rebar Production Lead to More Shutdowns of Steel Rolling Mills

According to an SMM survey, as of July 31, the operating rate of steel rolling mills that rely on external steel billets, which mainly produce rebar, was 6.07%, down 14.86 percentage points from the end of June and down 9.93 percentage points YoY.

In July, the nationwide average price of construction steel continued its downward trend, dropping 210 yuan/mt MoM, with the nationwide average price hitting new lows throughout the month, and market sentiment remained pessimistic.

Supply side, the decline in raw material prices was less than that of finished products, leading to increased losses for both blast furnaces and electric arc furnace-based steel mills, with average losses around 200 yuan/mt. Together with the transition phase of the new and old national standards, some steel mills have already scheduled maintenance and production cuts. In east China, many EAF steel plants have plans to halt production in August, bringing the overall operating rate to a yearly low, with further declines expected. Meanwhile, the price of steel billets has been roughly flat with market prices in some regions, causing severe losses for rebar production at steel rolling mills, leading most rolling mills to either halt production or switch to producing sheet metal.

Demand side, in July, the national rainfall shifted to the north, limiting demand in the north. Additionally, high temperatures in south China slowed down downstream construction progress, and overall transactions did not show significant improvement compared to June. August remains in the traditional off-season, but the impact of high temperatures will gradually weaken, and the potential for demand improvement is clearly better than in June and July.

Looking ahead, the weak supply and demand situation in August will continue. Fundamentals provide weak support for spot prices, and short-term profit levels of various steel mills are unlikely to improve. It is expected that the operating rate of steel rolling mills that rely on external steel billets will likely remain at a low level in August. However, excluding the possibility of profit recovery, which could lead to the early resumption of production by steel mills.