The recent increase in production costs due mainly to higher prices of raw materials, particularly scrap, is becoming a major concern for China’s independent electric-arc-furnace (EAF) makers, forcing some of them to further rein-in output. Limited scrap availability as traders slow their pace of delivery seems to be the reason, Mysteel Global has learned.
“The weather in northern China is gradually becoming colder and this has added to the difficulty of processing scrap outdoors,” a scrap trader in East China explained. “Moreover, our scrap suppliers have been watching finished steel prices rise and have lifted their prices higher in increments. Once we sell out our current scrap stocks, we are certain to face great difficulty collecting scrap from suppliers at low prices,” he explained. He was not willing to increase scrap deliveries immediately, he added.
For example, Shagang Group, China’s largest EAF steelmaker, has raised its scrap buying prices three times over the past two weeks by a total of Yuan 300/tonne ($42.4/t), as Mysteel has reported, and this has prompted scrap suppliers to increase their offering prices for scrap traders as well.
Also, the slower deliveries by scrap dealers led scrap stocks among the 211 EAF and blast-furnace (BF) steelmakers nationwide tracked by Mysteel to decrease by 6% on week as of November 10 to hit a five-week low of 3.42 million tonnes.
This crimping of scrap supply has collided with solid scrap demand among some Chinese steelmakers, especially BF producers, Mysteel Global notes.
The steel price recovery recently, plus the Chinese government’s optimization of policies regarding COVID prevention and containment, have given a welcome boost to market sentiment, as reported, fuelling raw materials buying enthusiasm among BF mills, both for maintaining normal production and for replenishment.
As a result, the recent imbalance between scrap demand and supply saw China’s steel scrap price index edge up by Yuan 120.5/tonne ($17/t) on week by November 15 to Yuan 2,957.7/t on delivery and including the 13% VAT, Mysteel’s data showed.
The rapid increase in steel scrap prices has added directly to the domestic EAF makers’ production costs, given that scrap is their primary raw material, according to a Shanghai-based market watcher.
“For the BF makers, the increase in scrap prices is offset by the recent retreat in prices of some other raw materials such as coke,” she observed. During the week of November 9-15, China’s national composite coke price under Mysteel’s assessment lost ground by Yuan 89/t on week to Yuan 2,509.1/t and including the 13% VAT.
In contrast, the average production cost of producing rebar among the 40 independent EAF mills under Mysteel’s other survey had increased by Yuan 85/t on week to Yuan 3,937/t during the same week.
Accordingly, the increase in production costs has deepened the losses for the EAF mills, dampening their keenness for production. During last week, some EAF firms in North and Northeast China commenced maintenance stoppages or scaled back output, Mysteel Global noted.
This is borne out by recent Mysteel data showing that as of last Thursday, the capacity utilization rate of the 85 independent EAF steel mills surveyed across China had reversed down after three weeks of inclines, dipping by 0.19 percentage point on week to 54.44%.
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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