As of February 26, less than half of China’s independent electric-arc-furnace (EAF) producers sampled in a new survey by Mysteel had resumed operations after the Chinese New Year (CNY) holiday over February 11-17. Though steel demand from users has revived and margins have improved, that the percentage is not higher is being blamed in part on the mills’ continuing struggle to source sufficient scrap.
According to the survey of 60 independent EAF mills nationwide published last Friday, 48.3% had returned to work, which was only slightly higher than the level of 46.6% still in operation in the week just prior to the CNY holiday.
After the CNY break, domestic steel prices have increased significantly while steel scrap prices have been rather stable, leading to the price spread from finished products and scrap widening, Mysteel Global notes, giving a welcome boost to the EAF steelmakers’ profit margins.
As of February 26, the price spread between rebar and scrap, for example, had expanded to Yuan 1,850.42/tonne ($286.3/t), much higher than the gap between the two as of February 18, the first working day after CNY, which was Yuan 1,449.53/t, according to Mysteel’s assessment.
“As a result, this year many EAF mills have resumed operations faster than at the end of the holiday last year,” a Shanghai-based market watcher observed.
However, the shortage of steel scrap availability is preventing many EAF mills from ramping up their production to the extent they would like and so capitalize on the improved margins, Mysteel Global learned from the survey.
As of last Friday, the responses from those 60 mini-mills showed that only 61.7% of them had recovered more 60% of their normal steel scrap supply level. Not surprisingly then, the steady consumption among these mills at a time when replenishing their scrap inventories remains a challenge saw 57% of these 60 mills admit that their steel scrap stocks were languishing at a relatively low level.
This is supported by the findings of another Mysteel survey which showed that steel scrap stocks at 61 sampled blast furnace and EAF steel mills nationwide had decreased to a near four-month low of 2.94 million tonnes as at February 25, down by a huge 21.9% on week.
“Though most steel mills including Shagang Group have raised their steel scrap procurement prices to attract more supplies, the volumes of scrap being delivered to mills have not improved, as some scrap traders have not returned to work after the holiday break yet,” the Shanghai source commented. Shagang Group is China’s largest EAF steel mill in East China’s Jiangsu province.
“The fact is that we are also facing some difficulties in collecting scrap from local scrap collectors,” an official from a scrapyard in East China’s Zhejiang province told Mysteel Global. “Though steelmakers have raised their inquiry prices when contacting us, we’ve also had to pay more to local suppliers to buy some resources to maintain our normal rates of sorting and separation,” he complained, adding that the demand for scrap from steel mills has largely outpaced the volume he can accumulate.
“If supply tightness doesn’t improve, sooner or later we will have to consider holding off selling,” he admitted.
Written by Lindsey Liu, liulingxian@mysteel.com
This article has been published under an article exchange agreement between Mysteel Global and SteelMint.
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