Poor profitability: Two steel mills using externally purchased billets have halted production this month.

[SMM Operating Rate of Steel Mills Using Externally Purchased Billets] According to the SMM survey, as of May 30, the operating rate of steel mills using externally purchased billets, which mainly produce construction materials, stood at 21.57%, down 13.07 percentage points from the end of April and 7.14 percentage points YoY.

In May, the price trend of construction steel nationwide fluctuated downward, with a MoM price decline of 107 yuan/mt. Domestic macro policies entered a vacuum period, market sentiment was sluggish, and futures prices continuously hit new lows.

Cost side, the coke price cut was implemented. Given that the recent decline in coal prices far exceeded that of coke, the production enthusiasm of coke enterprises remained unabated. However, with the arrival of the off-season for steel consumption, there is a possibility of further declines in raw material prices, and the cost support for steel may continue to weaken.

Supply side, in May, the export situation of steel billets was moderate. Some blast furnace mills had fully booked orders for June-July. If the prices of construction materials continue to weaken, there is an expectation of a reduction in the production of construction materials in the later period. Currently, the profits of EAF steel mills continue to shrink, and multiple electric furnace mills have reduced their operating hours. With the approaching plum rain season and an increase in rainy weather, the progress of construction projects for construction materials may slow down. Electric furnace mills will also reduce cost expenditures by lowering their operating rates to maintain corporate operations and profit levels. In May, the decline in the spot price of rebar was greater than that of steel billets. The profitability of steel mills using externally purchased billets was poor, and they reduced their operating hours. This month, two steel mills using externally purchased billets have halted production.

Demand side, as the traditional off-season deepens, with an increase in high-temperature and rainy weather, the capital availability rate at construction sites has not changed significantly. Coupled with the approaching senior high school entrance examinations and college entrance examinations, some construction sites will prohibit operations during specific time periods, strengthening the expectation of a weakening in marginal demand.

In summary, currently, the prices of construction materials continue to decline, and the profitability of steel mills using externally purchased billets is poor. Additionally, with a large number of export orders for steel billets, it has become more difficult to procure billets, leading to a decline in the operating rate of steel mills using externally purchased billets this month. As the plum rain season approaches, the progress of project construction will slow down, and demand will further shrink. There are still plans for steel mills using externally purchased billets to halt production in the later period. Therefore, it is expected that the operating rate of steel mills using externally purchased billets may decline slightly in June.