[April SMM Operating Rate of Billet Producers] There are Many Export Orders for Billets, Increasing the Difficulty for Manufacturers to Purchase Externally

[Operating Rate of Steel Mills Using Externally Purchased Billets (SMM Survey)] According to the SMM survey, as of April 29, the operating rate of steel mills using externally purchased billets, which mainly produce construction steel, stood at 34.64%, up 12.5 percentage points from the end of March and 9.14 percentage points YoY.

In April, the price trend of construction steel nationwide first declined and then rose, with a MoM price drop of 18 yuan/mt. Driven by the sentiment from the Central Political Bureau meeting and influenced by rumors of crude steel production control in the latter part of the month, spot prices saw a significant rally.

Cost side, currently, there is a relatively small imbalance in the fundamentals of raw materials, with prices remaining relatively stable. Earlier, coking coal and coke offered significant room for profit concessions, and blast furnace steel mills continued to operate profitably. Among them, some steel mills in east China achieved a profit of 150 yuan/mt for construction steel, while steel mills in the north-west China region still had positive cash flow. On the EAF steel mill side, due to the lack of a significant increase in finished steel prices and the difficulty in acquiring steel scrap, multiple EAF steel mills incurred losses. Supply side, recently, orders for billet sales have increased, with some blast furnace steel mills having fully booked orders for May-June, suggesting a potential decrease in construction steel production in the future. Additionally, due to poor profitability of EAF steel mills and the persistent issue of difficulty in acquiring steel scrap, the operating rate of electric furnaces is expected to remain at a medium-to-low level in May. In late April, spot prices rose, slightly improving the profitability of steel mills using externally purchased billets and increasing their operating hours. However, considering that some regions will focus on export orders for billets in May, leading to a tight local billet supply, steel mills using externally purchased billets have shown limited willingness to purchase billets at high prices. Therefore, individual mills have plans to suspend operations.

Demand side, on one hand, macroeconomic news has stimulated the release of speculative purchasing demand in the market. On the other hand, there is still demand for downstream stocking before the holiday, and recent market transactions have been moderate. However, it is understood that currently, there are many new projects starting in coastal regions, with better financial conditions compared to inland areas, allowing demand to continue to maintain phased growth. However, in other regions, financial constraints are prevalent, with most cases involving the use of new debt to repay old debt, and no improvement in demand. It is expected that overall demand performance will remain lackluster in May.

Overall, with a large number of export orders for billets, increased difficulty for steel mills using externally purchased billets to acquire billets, and short-term production cut plans at individual steel mills, it is expected that the operating rate of steel mills using externally purchased billets may decline slightly in May.

Chart-1: Trend Chart of Operating Rate of Steel Mills Using Externally Purchased Billets, 2020-2025