SMM daily comment on domestic steel production (Aug 16)

SHANGHAI, Aug 17 (SMM) –

According to SMM research, as of August 15, the operating rate of 34 electric furnace (EF) steel mills that mainly produce construction materials rested at 39.97%, a week-on-week increase of 0.29 percentage point, and the capacity utilization rate was 41.67%, a week-on-week increase of 0.99 percentage point. The average daily output of construction materials stood at 74,200 mt, an increase of 1,800 mt WoW.

During the survey period (August 8-August 15), steel futures market fluctuated in weakness. Muted demand was reported. Profits of EF steel mills narrowed, and those of some even returned below a break-even point. Under such circumstance, steel mills had low inventive to produce. However, lifting of production restrictions accelerated the progress of production resumption, slightly pushing up overall operating rate of EFs by 0.29 percentage point WoW to 39.97%.

In terms of regions, in East China, persistently high steel scrap prices and large losses of EF steel mills blunted steel mills’ enthusiasm for production, thereby dragging down operating rate of EFs by 2 percentage points WoW at 41%. In South China, low shipments triggered by falling steel prices shifted some steel mills towards less demand for steel scrap and more high-priced small material production to control profits. Therefore, the operating rate of EF decreased slightly to 49%. In the central China, given that most steel mills produced goods in a single shift and a single line, an operating rate of EFs remained low at 17%. In the southwest China, with lifting of policy on production restrictions, steel mills had great incentive to produce, thereby increasing operating rate to 47%.

From the follow-up point of view, a big fall in steel price, shrinking demand and persistently high steel scrap prices will be monitored. In addition, supply shortfalls will be reported. Under this circumstance, there will be a further cut in profits of EF steel mills, and single shift production will unfold. The operating rate of EFs may stand stable, and there will be lack of willingness to increase production.