Posted on 14 Aug 2020
The disconnect between blast furnace (BF) and electric-arc-furnace (EAF) use in China persists. Last Thursday when BF capacity utilization among the 247 mills that Mysteel monitors nationwide was found to have surged to a new high of 94.75%, capacity usage among the 71 independent EAF steelmakers Mysteel surveys had declined to a near one-month low of 56.76%, Mysteel’s data shows.
Behind the decline in EAF utilization – where the rate was lower by 1.78 percentage points on week or 0.3 percentage point on month – was partly the thinning profit margins EAF mills are suffering, combined with the lingering tightness in scrap availability, survey respondents said.
Recently, demand for construction steel has improved as the weather has become more suitable for working outdoors, now that the wet season has ended, and this pickup has encouraged BF mills to ramp up production. In turn, the firm demand for scrap and the tight supplies have reinforced scrap prices and kept them firm, Mysteel Global notes. As of August 11, Mysteel’s scrap price index had increased by Yuan 13.6/tonne ($1.9/t) on week to Yuan 2,555.7/t on delivery and including the 13% VAT – a six-month high since February 12.
However, for independent EAF producers, the relatively high scrap prices kept raising their production costs and squeezing their profit margins. For example, according to Mysteel’s data the cost of making blast furnace-produced rebar currently is around Yuan 3,550/t, while the cost of EAF-produced rebar has reached around Yuan 3,730/t.
On the other hand, electricity supply for industrial use remains tight in summer as power is prioritized for household use. Where possible, EAF makers are restricting heavy power-use operations such as melting to evening shifts to take advantage of cheaper off-peak power rates.
“The increase in scrap prices and high electricity bills have given us more pressure. We tried to operate at night, but our production costs are still relatively high,” an official from a mini-mill in Southwest Sichuan province told Mysteel. “Meanwhile, scrap deliveries to my plant are decreasing. Some scrap traders seem more willing to sell scrap to the integrated-mills whose procurement prices are higher,” he grumbled.
As a result, many EAF producers have no choice but to reduce their rebar output, opting instead to idle facilities rather than keep operating, in view of the high costs they face procuring scrap and the thinning profits they are earning, Mysteel Global notes.
Written by Lindsey Liu, liulingxian@mysteel.com
Edited by Russ McCulloch, russ.mcculloch@mysteel.com
Source:Mysteel Global
