Posted on 10 Oct 2023
Shagang Group (Shagang), China's leading electric-arc-furnace (EAF) steelmaker headquartered in Zhangjiagang city in East China's Jiangsu province, clipped its steel scrap purchase prices by Yuan 50/tonne ($7/t) effective from October 10 deliveries, the company announced on Tuesday morning.
After the adjustment, Shagang is paying scrap dealers Yuan 2,920-2,980/t for domestically processed HMS grade scrap, including delivery to its plants and the 13% VAT, according to the release.
The privately-owned steelmaker's price reduction is mainly aimed at helping it save on production costs, a market analyst based in Shanghai noted.
"Domestic steel demand has not shown any signs of a strong recovery, despite the frequent introduction of additional stimulus policies by the central government," the analyst said. "This has dragged steel prices lower and further squeezed the profit margins of electric-arc-furnace (EAF) steelmakers," she added.
As of October 9, for example, the 40 domestic EAF mills under Mysteel's coverage were enduring an average loss of Yuan 114/t on sales of finished steel products.
In fact, during October 7-9 – the first three working days after China's eight-day national holiday – many Chinese steel mills had already reduced their scrap purchase prices, even though they had low stocks of steel scrap, Mysteel Global learned.
Following Shagang's price adjustment, another 65 steel mills across the country cut their scrap buying prices the same day by Yuan 10-50/t, according to Mysteel's survey. Also, by Tuesday morning, the spot price of 6-8 mm grade carbon steel scrap in Zhangjiagang had lost Yuan 20/t on day to reach Yuan 2,570/t excluding the 13% VAT, as Mysteel assessed.
"The wide-ranging price cuts have stirred panic among scrap dealers, and they are more eager to sell their scrap stocks for fear that the prices will fall further," the market analyst observed.
On October 9, the scrap deliveries to Shagang's Zhangjiagang steel works touched a two-month high of 18,902 tonnes after increasing for seven straight days, according to Mysteel's tracking.
However, negative margins have dampened domestic EAF mills' eagerness to produce, leading the average capacity utilization rate among the 87 EAF steelmakers under Mysteel's survey to drop to a three-month low of 48.3% over September 29-October 5, with their consumption of steel scrap decreasing as well.
Admittedly, the drop coincided with China's National Day holiday week when some mini-mills would have slowed operations or stopped work completely to enjoy the break, Mysteel Global notes.
Source:Mysteel Global
