The profit margins that China’s electric-arc furnace steelmakers are earning on their steel are recovering, thanks to the pickup in domestic steel prices, market sources said on Wednesday. The EAF makers’ better returns might encourage them to beef up output, they suggested.
“Our steel profit margins have recovered to around Yuan 200/tonne ($28.4/t) currently, and we are operating at full capacity,” a manager with a Jiangsu-based EAF steel mill in East China remarked. “The profit margins on EAF-made steel in South China are even higher at Yuan 300-400/t,” he added.
According to him, the EAF mills had been barely breaking-even from August when domestic steel prices softened, but with finished steel prices gradually recovering from late last month, overall profit margins on EAF steel also rallied.
An analyst with a futures company in South China’s Fujian province was even more bullish, noting that currently, the margins being enjoyed by Southeast China-based mills might reach as high as Yuan 600-700/t.
Over the past several weeks, the improved steel-market sentiment has seen domestic steel prices recover markedly, with Mysteel’s national average benchmark price for HRB 400 20mm dia rebar up another Yuan 201/t on week as of November 20 to hit a 4.5-month high of Yuan 4,119/tonne including 13% VAT.
Also contributing to the increased margins for the EAF mills is the fact that steel scrap prices have remained largely unchanged, Mysteel noted.
As of November 20, Mysteel’s steel scrap price index remained at Yuan 2,586.8/t on delivery to steel plants and including the 13% VAT, actually lower by Yuan 1.3/t on week.
A Shanghai-based steel scrap analyst commented that from mid-November, the average margin on EAF steel had broken through Yuan 100/t – even for those mills whose operating costs are higher – which had driven most EAF producers to quickly ramp up their production.
Mysteel’s latest output data revealed this trend too, with the EAF capacity utilization rate among the 53 EAF steel mills nationwide which Mysteel regularly surveys seeing a substantial rise to 55.81% as of November 14, up by 3.35 percentage points over the November 8-14 week.
However, market watchers quizzed by Mysteel Global admitted to being a little concerned that the rise in EAF steel output that the quick recovery in the mills’ profit margins had encouraged, might weigh on future steel prices when domestic steel demand gradually softens in December, as frequently happens during the winter chill towards year’s end.
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