Posted on 12 May 2021
The profit margins that China’s independent electric-arc-furnace (EAF) steelmakers are earning on their steel just keep on rising, thanks to the faster pickup in domestic steel prices, market sources commented Monday. And the EAF makers’ better returns should encourage them to maintain high production, they predicted.
“The EAF producers’ profit margins have increased to over Yuan 1,000/tonne ($155.5/t) currently – which is really crazy,” a Shanghai-based market watcher observed.
Over the past several weeks, the bullish steel market sentiment – as well as robust steel demand – has led domestic steel prices to climb markedly, with Mysteel’s national average benchmark price for HRB400E 20mm dia rebar rising by Yuan 350/t on week to reach Yuan 5,605/t including the 13% VAT as of May 7, or the highest since Mysteel launched the survey in March 2011.
Compared to the larger increase in steel prices, domestic scrap prices have risen at a more sedate pace, with Mysteel’s steel scrap price index increasing by Yuan 109.8/t on week to Yuan 3,582.9/t on delivery and including the 13% VAT as of May 7, also hitting a near 10-year high since October 18 2011, according to the database.
However, the continuous improvement in their margins over the past week did not result in a parallel surge in capacity utilization among Chinese EAF producers. Over April 30-May 6, the capacity utilization rate among the 71 EAF steel mills nationwide which Mysteel regularly surveys actually recorded a dip – albeit slight – after ten weeks of increases. The sampled mills’ run-rate eased by 0.22 percentage point on week to 76.2%, but was still 19.88 percentage points higher on year.
“What contributed to the tiny retreat of EAF capacity use was the gradual shrinking of the stocks of scrap the mills had at hand, as some scrap traders had closed their businesses during the Labour Day holiday break,” the Shanghai analyst explained. “Moreover, transportation of industrial commodities was disrupted in many regions and this also impacted scrap deliveries to steel works,” she added.
On the other hand, most EAF mills kept to normal production schedules during the May 1-7 holiday. “The rather high level of daily scrap consumption – during a period when scrap deliveries were decreasing – resulted in the decline in mills’ stocks hand. This in turn prompted most EAF producers nationwide to limit any further increase in capacity use,” she said.
Nevertheless, with most steel mills lifting their scrap buying prices after the holiday to entice more deliveries, the mills will most likely keep ramping up production in the next few weeks, Mysteel Global understands.
Source:Mysteel Global
