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FEATURE: Multiple factors tip China mills to maintenance

Chinese steelmakers have announced intensive maintenance plans recently, and though overhauls are not uncommon during the usual winter lull in business, this year the mills are offering a variety of reasons for taking some major equipment items offline, citing everything from coke shortages to bitter cold.

Shaanxi Iron & Steel Group Co, a major long steel producer based in Northwest China’s Shaanxi province, has announced plans to bank five blast furnaces and refit rolling facilities at its Hancheng city works, and at the same time, bank another blast furnace and refurbish affiliated rolling facilities at its Hanzhong works in the same province about 500 kms away. 

The Hancheng overhaul will take about 30 days and that at Hanzhong around 70 days, and both maintenance periods are set for this quarter. Mysteel estimates that the stoppages, if being carried out as planned, will reduce the company’s steel production by 700,000 tonnes.

On the other hand, Rizhao Steel Holding Group, a common carbon steel producer based in Shandong province, East China, recently stopped a blast furnace and an Endless Strip Production facility (for rolling thin hot coils and strips) at its works for maintenance, Mysteel Global understands. When both might be brought back online remains unclear. 

Meanwhile, a stainless steel mill based in Jiangsu province, East China, has also announced plans to halt some operations from February 8 to undertake maintenance. Details remain vague but industry sources predict the stoppage will cut over 50,000 tonnes stainless steel output, mainly for 200-series.

“Many steelmakers have announced maintenance stops during February, mainly because their climbing production costs are putting their profits in danger,” a market watcher based in Shanghai observed, expressing sentiment that was confirmed Wednesday by an official from a major steel mill based in East China.

“If raw materials prices climb any further, all steelmakers will have to face losses,” he told Mysteel Global, confirming that his company is also mulling maintenance stoppages.

Usually during winter in China when demand for steel slows, steelmakers idle furnaces or other facilities to undertake scheduled regular maintenance, but this year, other considerations are weighing on steel mill managements and making such stoppages necessary from a business perspective, the mill official maintained.

“No company will be willing to stop their facilities if it can be helped. But now, mills would rather reduce output than lower their prices further because if they discount some more, they will be burdened with more losses thanks to the tumbling sales prices (of finished steel),” he added.

Entering January, prices of steelmaking raw materials such as iron ore have been constantly hovering at high levels, while the rise in coke prices which began last August shows no sign of losing momentum, Mysteel Global noted. On the other hand, steel prices have been softening, with no bottom in sight.

Since the beginning of this month, Mysteel’s SEADEX 62% Fe Australian Fines price index has been at a more than 10-year high, moving between $164.35-172.6/dmt CFR Qingdao, East China, as reported. Mysteel’s national composite coke price, on the other hand, had hit an over 12-year high as of January 26 to reach Yuan 2,594.8/tonne ($401.7/t), up Yuan 255.4/t in total for this month alone.

In comparison, Mysteel’s HRB400 20mm dia rebar price, a main indicator of China’s steel price movement, had declined Yuan 17/t from the end of December to reach Yuan 4,350/t as of January 26. All prices include the 13% VAT.

Among those steelmakers planning on idling equipment, some mills indicated that they were reducing output due to poorer demand and not just because the higher input costs including raw materials are shaving their margins.   

“The interim cost pressure is not the first problem we have to solve,” an official with a steel plant in North China’s Shanxi stressed, arguing that even if its margins were thin, the mill still had to keep producing in order to defend its market share. Maintenance stoppages were not the first choice.

Nevertheless, he admitted to Mysteel Global that his plant’s steel output is declining due to softening demand. This winter has witnessed some unusually low temperatures which unexpectedly forced construction companies to slow activity on building projects, he explained. In any case, the Chinese New Year holiday (over February 11-17) is coming closer, and already, the enthusiasm for steel replenishment among traders and end-users is ebbing, he added.

Another factor emerging this year and not seen in the recent past is the tightness of coke supplies, with stocks in some areas being so low as to force a steelmakers to shut down blast furnaces and scale down production. This is particularly the case of some producers based in North China’s Hebei province and East China’s Shandong, as transportation of coke is being disrupted locally due to lockdowns imposed by local authorities after the resurgence of COVID-19 in Hebei.

“We found that several mills in Hebei had to idle some blast furnaces, mainly because they lacked sufficient coke stocks,” said an analyst in Hebei. “But in general, the impact (of tight coke stocks) on the province’s steel production is only marginal for now.”

Even though the domestic steel makers have conceded to pay more and more for their coke since last summer, their coke stocks at hand have still continued to decline, Mysteel Global noted. As of January 21, total coke stocks at the 110 Chinese steel plants surveyed weekly by Mysteel hit a 47-month low of 3.9 million tonnes, lower 11% on month or 23% on year, as reported.

Still, some mills interviewed by Mysteel Global insisted that the large-scale overhauls they are carrying out are just part of regular maintenance and that they felt no pressure to do so.

“The condition of some facilities showed that they did need maintenance,” remarked an official with a Shaanxi-based steel mill. “But we admit that the higher production costs – underpinned by the high raw materials prices – have narrowed our margins on finished steel and this was a consideration when we were examining whether to have a maintenance stop,” he admitted.

Written by Olivia Zhang, zhangwd@mysteel.com, Sean Xie, xiepy@mysteel.com and Victoria Zou, zyongjia@mysteel.com

Edited by Russ McCulloch, russ.mcculloch@mysteel.com