Posted on 13 May 2022
The torrential rain drenching wide swathes of southern China since May 9, especially coastal regions in Guangdong, Guangxi and Fujian provinces, is hampering work at construction sites, disrupting logistics and impacting steel demand and scrap supply, market sources told Mysteel Global Thursday.
"Work on construction projects is stopped," an official with a Guangdong-based steelmaker noted. "Building contractors are not working and so they've temporarily halted buying," he complained.
So far Guangdong has suffered the most from the seasonal downpours, Mysteel Global noted, with the provincial government already issuing over 50 heavy rain warnings since Tuesday, with eleven being 'red' alerts. Moreover, the China Meteorological Administration says the rains herald the start to this year's rainy season – beginning several weeks earlier than usual – and warns that the rain could be the strongest, most extensive and longest-lasting so far this year.
Usually from May to July, South China's Guangdong and Guangxi experience frequent and heavy rainfalls as part of the seasonal monsoons but the torrential rains don't usually start till late May. The Meteorological Administration says the present deluge will continue till May 14 at least.
Limited impact on integrated mills' production
Though the continuous rainfalls have interrupted outdoor construction work, so far the influence on steel demand is limited, with the result that steel production overall, especially among integrated mills, is not being affected much, market sources indicated.
"Steel trading is as per normal," the Guangdong mill official noted. "Despite the rains, business is being supported by the construction of the Guangdong-Hong Kong-Macao Greater Bay Area Development project (so) for the time being, we have been running at full capacity," he said. The infrastructure-intensive development will see no fewer than 12 inter-city railway links added, Mysteel Global notes.
The major steel mills in Fujian province have also been operating normally, a local industry watcher observed. "The rains here are not as serious as they are in Guangdong. Actually, Fujian has witnessed relatively low rainfalls in the first three days this week, so the impact is not as obvious," he remarked.
However, on May 12 after the Fujian Meteorological Bureau upgraded its Level-IV emergency response major meteorological disasters (rainstorms) to Level-III, end-users will very likely to halt their work and transportation may be impeded as well, due to the increased precipitation, he predicted. Mill operations will likely slow as a result.
EAF-makers reining in their output
In contrast to the stable production among blast furnace mills, some mini-mills in these areas have reined in their output, Mysteel Global learned Thursday.
"The rainy weather is making it difficult for scrap suppliers to locate feed materials," another industry watcher said. "And it's not only scrap securing being impacted, processing activities in most scrapyards in Guangdong have also been severely disrupted as most don't have undercover sorting facilities," she explained.
In fact, a Mysteel survey shows that output of scrapyards in Guangdong in the rainy days since May 9 has been slashed by 20-30%.
But the wet weather is not solely to blame, the source argued. "The rainy weather is not the core factor cooling the mini-mills' enthusiasm for production. Probably the larger contributors are the relatively high scrap prices when finished steel prices are softening. This is eroding the steelmakers' profit margins and forcing them to reduce output," she said.
As of May 11, another Mysteel survey on EAF mills in southern regions of China showed that these mills would lose an average of Yuan 118/tonne ($17.4/t) in producing rebar at full capacity.
"Regardless of whether it rains or not, we will choose to scale-back our output to avoid more losses," an official with a mid-sized EAF mill in Guangdong admitted. "For now, our plant is working for ten hours a day, five hours less than before," he added.
Source:Mysteel Global
