Shandong mills shrug off higher power costs
“Sure, the (higher charge) did buoy our production costs for molten iron but the increase was very limited in the context of our total costs for steelmaking so it is still acceptable,” an official from one of the 15 makers admitted candidly.
The cost for producing molten iron among 91 blast furnace mills surveyed monthly by Mysteel averaged Yuan 2,226/tonne in December excluding 16% VAT. Given the mill official’s estimate that producing one ton of molten iron consumes about 150-200 kWh of electricity, the additional cost burden the Shandong DRC’s order has placed on mills is a scant Yuan 15-20/t, Mysteel calculates.
The 15 steelmakers host most of the steel capacity in Shandong but actually, most don’t need to purchase electricity from the State Grid because they have their own electricity generation facilities near or inside their works, a second Shandong-based market insider remarked.
Usually, the cost of generating electricity from captive power plants is lower than the tariff the State Grid levies – sometimes by as much as 30%, Mysteel understands.
“Some mills with their own power plants even sell their surplus electricity to other enterprises – including other steelmakers – so those mills without power plants are able to buy cheaper power from the market instead of from State Grid,” the second Shandong official added.
However, respondents to Mysteel’s casual poll admitted that the impact of government policies on steelmakers relating to the formulation of electricity charges will hit them sooner or later. “To be honest, the latest move by the local government was more like an appetizer. It only affected 15 mills now but it (the measure) will gradually spread to more mills or enterprises in other sectors, I bet,” the insider said.
The notice advising of the cost increase which the Shandong DRC released on December 29 – just three days before the rise took effect – mentioned that the additional fees the mills would be charged were calculated based on regulations China’s Development and Reform Commission formulated in 2016 as a supplementary method to boost supply-side reform of the steel industry by means of adjusting prices, Mysteel notes.
Shandong is China’s third-largest steel production hub, following just behind North China’s Hebei and East China’s Jiangsu, with crude steel output totalling 71.48 million tonnes in 2017, Mysteel noted.
Written by Venus Wang, wangyi@mysteel.com
Edited by Russ McCulloch, russ.mcculloch@mysteel.com
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