The Market Enters Off-Season, Operating Rate of Steel Mills Using Externally Purchased Billets Declines

According to an SMM survey, as of November 29, the operating rate of steel mills using externally purchased billets, which mainly produce construction steel, was 26.21%, down 4.79 percentage points MoM and 4.58 percentage points YoY.

In November, national construction steel prices fluctuated downward. On November 1, the rebar price was 3,541.5 yuan/mt, the highest point in November, while on November 28, the rebar price was 3,404.3 yuan/mt, down 137.2 yuan/mt from November 1.

Cost side, currently, coking coal supply is relatively ample. With continuous price concessions in coking coal, coking plants are restocking smoothly, and steel mills' coke inventory remains at medium-high levels. As steel prices weaken, the risk of further declines in coke prices increases. Supply side, the market is entering a seasonal off-season, and the profitability of both BF and EAF steel mills is declining. Some steel mills have announced maintenance and production reduction plans. Additionally, some steel mills in north-west China are gradually entering winter break, leading to a decrease in construction steel supply. Furthermore, due to the continuous weakening of finished steel prices, the profits of steel mills using externally purchased billets are being compressed, resulting in some enterprises reducing operating hours. In November, the operating rate of these mills decreased by 4.79% MoM. Demand side, recent cold wave weather has brought snowfall to many northern regions, hindering outdoor construction and reducing steel demand. Construction steel inventory has accumulated, and the steel market is in a weak supply-demand balance.

Overall, on the macro side, the market is expected to enter the "macro month" in the future. The market still has expectations for year-end property deliveries, important meetings in December, and economic work. However, from a fundamental perspective, the market is currently in a seasonal off-season with overall weak demand. Steel mills, due to continuous profit compression, have begun to shut down for maintenance, leading to a gradual decline in steel production. The market is entering a weak supply-demand balance. It is expected that the operating rate of steel mills using externally purchased billets may decline in December. Future attention should be paid to macroeconomic changes and the winter stockpiling situation in various regions.