China’s domestic electric-arc-furnace (EAF) steel mills are complaining that the recent plunge in finished steel prices has dragged their profit margins down as well – a claim new Mysteel data seems to confirm.
As of May 28, the margins being earned by the 18 independent Chinese EAF mills under Mysteel’s regular survey, for example, averaged Yuan 428/tonne ($67.2/t), down Yuan 295/t on week. The average was also lower by a large Yuan 517/t since May 13, the day that domestic steel prices began to show their first signs of heading south.
The recent tumble in steel prices has dampened market sentiment and caused prices of other ferrous materials including steel scrap to decrease as well. However, unlike the fast pace of the plunge in steel price, the decrease in steel scrap has been slower, Mysteel Global noted.
As of May 28, China’s national benchmark price for HRB400 20mm dia rebar had lost some Yuan 319/t on week or Yuan 1,265/t from May 12 to reach Yuan 5,083/t, according to Mysteel’s assessment. On the other hand, over the same period Mysteel’s steel scrap price index had edged down by a far more leisurely Yuan 255.4/t on week or Yuan 270.2 from May 12 to Yuan 3,493.4/t, both including the 13% VAT.
Consequently, the price spread between rebar and steel scrap had narrowed by Yuan 59.68/t on week to last Friday, or Yuan 960.1/t from May 12 to average Yuan 1,563/t as of May 28, Mysteel’s data shows.
Despite the thinning margins, most Chinese EAF producers can still earn relatively good profits, and this is encouraging them to maintain high production, Mysteel Global noted.
In tandem, the capacity utilization rate among the 71 EAF mills nationwide under Mysteel’s survey decreased for the second week as of May 27, or down another 2.18 percentage points on week to 74.36%. Nonetheless, this was still a relatively high level compared with the 60% average run-rate rate the mini-mills had struggled with for the past several years.
“We can keep producing as long as we don’t lose money. So there is no reason for us to reduce our production for now, especially when we can still enjoy such healthy margins,” an official from an EAF mill in East China’s Jiangsu province told Mysteel Global.
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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