Steel Market Cools, Short-Term Electric Furnace Operating Rate May Struggle to Improve

During the survey period (August 12-19), the off-season effect became evident, with an accelerated pace of steel inventory buildup. In the absence of new policy stimuli or news developments, the futures began a deep correction, and spot prices followed suit, dropping 71.1 yuan/mt WoW. End-use demand was relatively weak, distributors were cautious, and there was a low willingness to purchase, leading to generally weak transactions. Affected by the decline in spot prices, the profitability of electric furnaces decreased this week, and EAF steel mills remained cautious, with little change in overall production rhythm. Overall, the national electric furnace operating rate was 39.9%, flat WoW.

In East China, the electric furnace operating rate was 44.7%, flat WoW. The regional supply-demand pattern saw little change, with some electric furnaces experiencing reduced profits, and production still mainly relying on valley electricity. In South China, the electric furnace operating rate was 48%, flat WoW. Recently, due to rainy weather, construction sites faced obstacles, causing a slight inventory buildup at some short-process steel mills, but overall, the operating situation remained stable. In Central China, the electric furnace operating rate was 19.9%, flat WoW. This week, the profitability of regional electric furnaces changed little, but due to the drop in finished product prices, profits declined, and most steel mills are now at the break-even point. In South-West China, the electric furnace operating rate was 38.9%, flat WoW. All previously suspended electric furnaces have resumed production, but under the backdrop of off-season demand, manufacturers, considering the impact of power rationing due to high temperature and the cost of steel scrap, maintained the previous operating duration this week.

Overall, with persistent hot and rainy weather, it is difficult to see an improvement in downstream construction progress. End-users continue to purchase as needed, and in the short term, electric furnace mills face dual pressures from inventory buildup of finished products and increased costs of steel scrap recycling. Therefore, it is expected that the electric furnace operating rate may slightly decrease next week.