Chinese steelmakers including both blast furnace (BF) and electric-arc-furnace (EAF) producers across the country have shown little inclination so far to stock up steel scrap for winter operations, an unusual situation given that November is almost over and winter looms. Domestic market sources Tuesday blamed the mills’ hesitation largely on their thinning margins and occasional losses, softening downstream steel demand, and tight cashflow conditions among some steelmakers.
At this time of year when daytime temperatures throughout much of China are falling, steel mills usually consider stocking some raw materials including ferrous scrap at their plants for winter consumption, as scrap collecting and processing out of doors, along with the transportation of scrap material, will be impacted by the cold. Moreover, at this time, some mills also like to build inventories of additional scrap stocks before the Chinese New Year (CNY) holiday around January-February, as most scrap traders will halt business early to enjoy a longer CNY break, Mysteel Global noted. In 2023, the official CNY holiday will span January 21-27.
“Next year’s CNY holiday is earlier than usual but for now, steel scrap market participants are very cautious about planning their winter stock build,” a Shanghai-based market observed, noting that CNY usually falls in February.
This year’s winter stocks seen 10-20% lower
A recent Mysteel poll among 21 steel mills in East China’s Jiangsu – China’s core ferrous-scrap consumption base – found that 67% planned to replenish this winter, whereas the remaining 23% of mills said they had no plans as yet. Among the former group likely to build stocks, almost all confirmed that their planned winter restocking volumes would be lower by over 10% compared with last year.
“The lower-than-expected steel demand since September has weighed heavily on domestic steel prices, which in turn has kept squeezing our profit margins or even making our plants lose money,” an official from an EAF mill in Jiangsu said. “Consequently, we’ve had to frequently halt our production to avoid more losses,” he told Mysteel Global.
The mill’s reduced output had led directly to lower scrap consumption, and so it has no need to restock scrap inventories in larger quantities, the official explained, adding that his mill’s planned winter restocking scrap volume would probably be 20% lower than last year.
Another official from a mini-mill, also in Jiangsu, commented, that the recent fluctuations in scrap prices and the increase in COVID cases have added uncertainties to the market, causing his firm to hesitate before dipping into the market for ferrous scrap.
Mysteel data supports this view. Steel scrap stocks held by the 211 BF and EAF mills nationwide tracked by Mysteel hovered at a relatively low level of 3.38 million tonnes as of November 24, or lower by 50.4% than the same period last year.
CNY is coming sooner but there’s no hurry
“Considering that next year’s CNY holiday will come earlier than in other years, we will soon need to determine our CNY holiday production schedule, then purchase some additional scrap stocks accordingly,” he said, pointing out that last year, the mill had idled its furnaces one week before the holiday. “If we adopt the same plan this year, it is not too late for us. We don’t need to take any action for winter restocking until mid-December,” he suggested.
And it’s not only steel mills in East China showing an unwillingness to buy additional scrap for winter, Mysteel Global noted.
“Most steel mills in China are bearing thinning profits or losses. In fact, steelmakers in East China have lost less money than those in North and Northeast China already,” the Shanghai-based market watcher argued. “The perennial losses have led to rather tight cashflow situations among domestic steel mills (so) even if some of these mills had plans to restock in large quantities, they would have not enough money for it,” she said.
By November 24, Mysteel’s other survey among a small sample of 40 independent EAF mills across the country found that they were still losing Yuan 57 ($7.2) on every tonne of rebar they sold.
A scrap trader whose customers are mostly steel mills in North China’s Hebei confirmed that business is unusually slow for this time of year. “So far, I have not received any orders or buying plans from my buyers. They seem in no rush to restock yet,” she commented.
COVID curbs the buying interest as well
Besides their limited cash flow, the temporary lockdowns being observed in many parts of the country in response to resurging COVID-19 cases is another factor contributing to their delay in winter restocking, she told Mysteel Global.
“Recently, temporary isolation orders across scattered areas have been issued frequently, and COVID checks of drivers – especially freight haulers – are very strict and take some time, which generally slows the pace of scrap buying and delivering. So, some mills are choosing to stay on the sidelines, waiting for this pandemic wave to ease,” she said.
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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