As the September-October peak season approaches, operating rates at steel mills using externally purchased billets may increase slightly in September.

[SMM Survey on Billet-Using Mills' Operating Rates] According to the SMM survey, as of August 29, the operating rate of steel mills using externally purchased billets primarily producing construction steel stood at 23.71%, up 6.85 percentage points MoM from July-end and up 1.46 percentage points YoY.

In August, national construction steel prices fluctuated downward, with the average rebar price dropping 91.5 yuan/mt MoM. Persistent high temperatures and rainy weather hindered construction progress downstream, leading to tepid demand. End-users continued purchasing as needed, showing limited stockpiling enthusiasm, while total steel inventory accumulated at a faster pace.

Cost side, coking coal supply tightened slightly due to the military parade, but weak downstream purchasing kept market activity mediocre, pushing the price center lower. Currently, coking plants have seen significant profit improvements, intensifying negotiations between coking plants and steel mills. Raw material prices are expected to remain stable in the short term.

Supply side, some steel mills have initiated blast furnace maintenance plans ahead of the September 3 military parade, constraining short-term capacity release. However, most mills remain profitable, maintaining steady production enthusiasm, with some previously idled mills resuming operations as scheduled. Falling finished steel prices squeezed EAF steel mill margins, increasing operational pressure and prompting some electric furnace mills to reduce operating hours, leading to a slight overall supply contraction. Billet-using mills reported mediocre profitability, with most maintaining their established production pace based on internal plans, customer orders, and market outlooks. However, a few mills resumed operations to capture early market share ahead of the peak season.

Demand side, speculative hype has cooled, shifting market focus back to fundamentals. Against this backdrop, spot prices fluctuated downward, speculative activity weakened, and downstream demand remained subdued, with end-users mostly purchasing as needed.

Overall, construction steel prices are fluctuating downward, and billet-using mills' profitability remains mediocre. Most mills maintain their production pace, though a few have resumed operations to secure early market share ahead of the peak season, slightly raising operating rates. As the September-October peak season nears and weather impacts ease, market demand may improve, potentially lifting spot prices. Thus, billet-using mills' operating rates are expected to increase slightly in September.