According to SMM research, as of June 27, the operating rate of 34 electric furnace steel mills that mainly produce construction steel rested at 37.91%, a month-on-month increase of 1.15%, and the capacity utilization rate was 41.72%, a month-on-month increase of 0.95%. The average daily output of construction steel stood at 74,300 mt, an increase of 1,700 mt from the previous month.
During the survey period (June 21-June 27), steel prices first fell and then rose, and the supply of scrap steel continued to be tight. The profits of steel mills in East China and Central China declined, and the enthusiasm for production was weak. With operation resumption of some steel mills amid passable destocking, the operating rate of electric furnaces rose slightly by 1.15 percentage points to 37.91%.
In terms of regions, in East China, the profits of steel mills fell below the breakeven line. In addition, it was difficult to collect waste. Therefore, the enthusiasm for production was not good. However, some steel mills resumed production within the week, driving the operating rate to rise by 3.4 percentage points to 43%. In South China, the profits of steel mills remained stable, and the operating rate remained at around 49%. In Central China, steel mills suffered serious profit losses, and kept operating rate low at 21%, considering market share, cash flow and other issues. In Southwest China, the profit of steel mills remained between negative 100 yuan/mt and positive 50 yuan/mt this week, and the supply of scrap steel failed to improve, and the operating rate remained at 34% this week.
In the follow-up, under the influence of high temperature and rainy weather, demand may decrease significantly. In the short term, the market will be keen on policy speculation. The absolute amount of construction steel inventory will be low, and cost support will be strong. Under this circumstance, steel prices may continue to fluctuate at a high level, but the supply of scrap steel will remain tight, and the price will be relatively strong. It is difficult for steel mills to make excess profits, which may suppress the subsequent operating rate. It is expected that the operating rate will remain at around 35-40% next week.
