[December SMM Operating Rate for Rolling Mills] Operating Rates at Rolling Mills Continue to Decline, Centralized Holidays Expected in January

【SMM Operating Rate of Steel Mills Using Externally Purchased Billets】According to the SMM survey, as of December 31, the operating rate of steel mills using externally purchased billets, which mainly produce construction steel, was 25.29%, down 0.92 percentage points MoM but up 2.93 percentage points YoY.

In December, construction steel prices across the country fluctuated downward. On December 31, the rebar price was 3,417.5 yuan/mt, down 5 yuan/mt from the rebar price of 3,422.5 yuan/mt on December 2.

Cost side, the fifth round of coke price adjustments was implemented, but coke producers still maintained profits, and their operating rates remained relatively stable. As the Chinese New Year approaches, coal mines are expected to cut production. It is anticipated that steel mills will have less incentive to further suppress coke prices, and coke prices are likely to remain stable in the short term. Supply side, as the year-end approaches, steel mill maintenance activities have increased, coupled with the impact of some annual maintenance plans, leading to a decline in pig iron production and a reduction in construction steel supply. Additionally, due to the current fluctuations in finished steel prices, profits for billet-processing mills are average, and some have already started their holidays early. The operating rate of billet-processing mills in December decreased by 0.93% MoM. Demand side, affected by seasonal factors, construction progress slowed this month, with outdoor construction projects in northern regions gradually halting, leading to a decline in steel demand. The steel market remained in a weak supply and demand pattern.

In summary, on the macro side, December saw the market enter a macro-focused month with several major meetings held in succession. Among them, the Central Political Bureau meeting proposed implementing a more proactive fiscal policy and moderately loose monetary policy next year, slightly boosting market sentiment. However, returning to fundamentals, the market is currently in an off-season, with construction in northern regions restricted and overall steel demand weak. Meanwhile, steel mills, affected by profits and annual maintenance, have reduced supply. The market continues to experience a weak supply and demand pattern. In January, billet-processing mills are expected to enter a concentrated holiday period, and their operating rates are anticipated to continue declining.

Chart-1: Operating Rate Trend of Steel Mills Using Externally Purchased Billets, 2020-2024