SMM Operating Rate for Steel Billet in May: Slight Increase in Operating Rate, but Production Faces Difficulty Returning to High Levels as Off-Season Approaches

According to the SMM survey, as of May 31, the operating rate of major rebar-producing steel mills was 28.71%, up 3.21 percentage points from the end of April and up 5.71 percentage points YoY. In May, the construction steel spot prices fluctuated widely.

In the first half of May, spot prices fell to a low level, then surged and fell back in the latter half. The nationwide average price increased by 7 yuan/mt MoM.

On the supply side, the immediate profit performance of blast furnace-based steel mills in May was poor. However, considering that most steel mills have low inventory, their production enthusiasm remains moderate. Additionally, some steel billet orders have been completed, and some molten iron has been redirected to the rebar sector, with production rebounding to mid-year levels. Recently, the benefits of electric furnace-based steel mills have been maintained, basically around 50 yuan/mt. However, in some regions, difficulties in scrap collection and peak electricity prices limited the ability to resume full production, and in the short term, production will continue to be maintained at the level of off-peak electricity production. The production of specialty steel in billet rolling mills is profitable, but the production of rebar is still around the breakeven point. Although some manufacturers resumed production, the increase in operating rate is limited.

On the demand side, in the first half of May, stimulated by macroeconomic news, market demand was still able to be maintained. However, later, as the northern region gradually enters the busy farming season, the construction progress of some sites slowed down, and demand were limited until around early June. Additionally, the impact of the rainy season in south China in mid to late June may reduce the overall demand, and the market's expectation for demand intensity in the traditional off-season of June is relatively weak.

Looking ahead, as the profits of billet rolling mills have not significantly improved, steel mills are not highly willing to produce at full capacity and mostly maintain a half-load production state. It is expected that the operating rate of billet rolling mills in June still has room for growth.