Posted on 10 May 2023
The capacity utilization rate of the 87 Chinese independent electric-arc-furnace (EAF) steelmakers across China under Mysteel's regular survey decreased for the fifth straight week during April 28- May 4 by another 5.84 percentage points on week to hit a near three-month low of 50.42% on average as of May 4. Weakening finished steel prices continue to impact the makers' profit margins or exacerbate existing losses, prompting more EAF makers to reduce production, sources said.
The steel demand recovery has been slower than expected and the pace may weaken further this month with the approach of the low consumption season when humid weather and higher temperatures disrupt outdoor construction activity, one said, warning that this will weigh on domestic steel prices and further erode steelmakers' margins.
For example, as of May 6, a substitute working day in China for last week's Labour Day holiday, Mysteel's assessment of the national price of HRB400E 20mm dia rebar was lower by Yuan 30/tonne ($4.3/t) from May 4 at Yuan 3,815/t and including the 13% VAT.
Also, by the end of last week, Mysteel's other survey among 40 EAF mills nationwide showed that these mills were still losing Yuan 80/t on rebar sales.
"Though steel prices were stimulated by the news of production cuts among steelmakers in (North China's) Tangshan, it is still hard to see any easing of the financial pressure that EAF makers are currently under," a Shanghai-based market watcher predicted.
On May 6, steelmakers in Tangshan city's Fengnan district received official notification from the local development and reform bureau requiring them to ensure that their crude steel output this year is no higher than that of last year, as Mysteel Global reported.
The price uptick from the Fengnan news is unlikely to last long however, as domestic steel market trends will still be determined by the negative fundamentals, namely the imbalance of weak demand and increasing steel supply, the Shanghai source suggested.
On the other hand, the approaching rainy season and high temperatures will also hamper the collection and sorting of steel scrap outdoors, while the scrap supply limitations will likely ensure scrap prices keep stable or move upward, which will add to the mini-mills' production costs, according to her.
In sum, their existing financial pressure will prompt some EAF mills to keep reducing their production in the near term, Mysteel Global learned.
Source:Mysteel Global
