Steel Mills' Profit "Cushion" Remains, Impact from Maintenance on Construction Steel Slightly Decreases

According to the SMM survey, the impact from maintenance on construction steel slightly decreased this week (8.16-8.22), with two steel mills resuming production of blast furnaces and associated rebar rolling mills. The impact from maintenance on construction steel was 1.2824 million mt, down 4,800 mt WoW.

Rebar prices continued to rise first and then fall last week, with the national weekly average price at 3,250.2 yuan/mt, down 19.9 yuan/mt WoW. In the first half of the week, news about safety inspections and production restrictions on coking coal and coke led to a strong rally in their prices, driving a slight rebound in construction steel prices and squeezing immediate profits for steel mills. In the latter half of the week, market expectations were dashed, leading to a deep correction in coking coal and coke futures and spot prices, significantly weakening cost support for construction steel. Coupled with poor performance in the latest real estate data, weak demand became evident, accelerating the inventory buildup of construction steel. Rebar spot prices continued to decline, and point-to-point profits for steel mills kept shrinking. Despite the downward trend in production profits for construction steel last week, most steel mills still maintained gross profits above 100 yuan per ton and held some expectations for the traditional peak season of September-October, showing no significant reduction in production willingness. The impact from maintenance this week remained relatively stable.

According to the SMM survey, the impact from maintenance in North, Central, and East China increased slightly. In North China, one steel mill suspended a rebar rolling line due to poor iron output from the blast furnace and prioritized sheet and plate production, which offered higher profits. In Central China, a steel mill's blast furnace and associated rebar rolling lines underwent maintenance. In East China, intermittent maintenance of rolling lines concentrated its impact this week. By contrast, one steel mill in South-West China resumed production of its rebar rolling line after maintenance. Other regions' steel mills maintained their maintenance status from last week, with no significant changes in the impact from maintenance.

Looking ahead, it is understood that the number of construction sites ordered to halt operations around the time of the September parade in the Beijing-Tianjin-Hebei region will be limited, suggesting that the actual impact on demand may be minimal. Additionally, as high temperatures and heavy rainfall decrease in mid-to-late August, the pace of downstream construction is expected to accelerate, potentially increasing end-user procurement demand. Although the inventory buildup of construction steel has accelerated over the past two weeks, it remains at historically low levels, resulting in relatively small inventory pressure. Considering these factors, steel mills remain confident in the future rise of rebar prices and are highly motivated to produce. According to the SMM survey, steel mills in North, Central, and East China all have plans to resume production next week, and the impact from maintenance on construction steel is expected to continue decreasing. In the short term, close attention should be paid to production restriction information related to the "September 3rd Parade," as there is a possibility that policy requirements could lead to an increase in the impact from maintenance on construction steel.