SHANGHAI, Jan 8 (SMM) – Planned production of construction material rebar shrank in January, after two consecutive months of increase, as reduced profits drove producers to other types of steel products.
A SMM survey showed that rebar scheduled output in January across 31 major producers of long steel in China is expected to fall 2.8% from the actual output in December to stand at 7.71 million mt. This was 7.4% lower from the planned production in December.
Output for domestic sales is planned at 7.57 million mt this month, down 2.73% from December, with scheduled exports also lower by 10,000 mt on the month to 140,000 mt. Chinese steelmakers showed limited willingness to export steel products, except for delivery under long-term contracts, on the back of broad weakness in global demand.
Separately, SMM survey also showed that the scheduled output of wire rods across surveyed mills in China declined 0.13% from the realised output in December, to 2.99 million mt in January.
Production of wire rods for domestic sales is planned at 2.85 million mt this month, up 0.21% from December, with the volume for export dipping 10,000 mt on the month at 135,000 mt.
Rising supplies and seasonally weakened demand depressed spot prices of rebar in December, and this dragged profit margins of rebar 98 yuan/mt lower than that of hot-rolled coil, SMM assessed as of January 7. This saw the production at steel mills shifting from rebar to steel coil, plate, and billet.
Squeezed margins and slower consumption also triggered concentrated maintenance at steel mills, which kept full operation for most of 2019 to chase high profits.
According to SMM calculations, maintenance across steelmakers in China is likely to reduce rebar production by 1.15 million mt in January, 134,000 mt higher than the affected volume in December.
During the 2019-2020 heating season, regular occurrence of smog alert for environmental protection constrained production at steel plants in China, and this was also the driver behind the smaller rebar output planned for January.
SMM expects spot rebar prices to remain rangebound without a clear trend before the Chinese New Year holiday as declining production or suspension at blast furnaces/electrical arc furnace (EAF) steel mills drive the market towards a demand and supply balance.
