Profit warnings flash red: Three additional steel mills using externally purchased billets halt production for maintenance this month

[SMM Operating Rate of Steel Mills Using Externally Purchased Billets] According to the SMM survey, as of June 30, the operating rate of steel mills using externally purchased billets, which mainly produce construction materials, was 13.86%, down 7.71 percentage points from the end of May and 7.07 percentage points YoY.
In June, the national construction steel prices fluctuated downward, with a MoM price decline of 33 yuan/mt. Under the weather conditions of rainy in the south and hot in the north, downstream construction was hindered, and end-users mostly purchased as needed. Market speculative demand was poor, and overall transactions were weak.
Cost side, affected by safety and environmental protection inspections and coal mine accidents, the supply of raw coal contracted in stages, and coking coal prices rebounded slightly. After the coke price cut was implemented, coking profits contracted, and some coking enterprises incurred losses, leading to production cuts. However, the overall supply remained high. Overall, the current supply-demand imbalance in the raw material sector has decreased, and short-term cost support from the raw material sector still exists.
Supply side, currently, the operating conditions of BF and EAF steel mills have diverged. Blast furnace steel mills have moderate profits, and pig iron production from blast furnaces remains at a high level. EAF steel mills, however, have poor profitability. Some electric furnace plants have proactively conducted equipment maintenance or reduced production time. With the continuation of high temperatures in the later period, downstream construction will be constrained, and steel demand may further decrease. There is a lack of strong support for the profit recovery of electric furnace plants. Currently, the construction steel market has entered the off-season, with overall weak demand. Steel mills using externally purchased billets have no strong willingness to purchase billets at high prices. This week, three additional steel mills using externally purchased billets halted production for maintenance.
Demand side, under the hot and rainy weather, the progress of end-user construction has been significantly restricted, and steel demand continues to be weak. Additionally, many domestic steel-consuming units are not optimistic about the overall economic situation and have adopted low-inventory strategies, leading to a decrease in end-user procurement volumes.
Overall, construction material prices continue to decline, and the profitability of steel mills using externally purchased billets is poor. This month, three additional enterprises halted production, and the operating rate of steel mills using externally purchased billets has decreased. With the continuation of high temperatures in the later period, there is a possibility of further exacerbation of the supply-demand imbalance. Coupled with financial constraints, it is not advisable to be overly bullish on steel prices in the future. Therefore, it is expected that the operating rate of steel mills using externally purchased billets in July may remain low.