China EAF mills lift output again, chasing profits

Capacity utilization among the 87 Chinese electric-arc-furnace (EAF) steelmakers under Mysteel's regular tracking climbed for the nineth straight week during December 1-7, rising by 1.86 percentage points on week to reach 65.83%. The welcome return of healthy profits is encouraging most domestic mills to lift production, survey respondents explained.

In tandem, the average operational rate among the sampled 87 mills also went up by 0.52 percentage point on week to reach 75.16% during the same survey period.

"The optimistic outlook for the macro economy that many market participants hold gave a boost to domestic steel prices late last week, which allowed steelmakers to enjoy larger profits," a market analyst based in Shanghai said.

For example, on December 8, China's national price of HRB400E 20mm dia rebar was assessed by Mysteel at a near eight-month high of Yuan 4,105/tonne ($575.6/t) including the 13% VAT, gaining Yuan 45/t on week.

On the same day, the average profit on sales of construction steel among the 40 independent EAF mills under Mysteel's other survey stood at Yuan 84/t, higher by Yuan 15/t from December 1.

"As a result, many EAF mills' keen to bolster their profits kept their plants operating for 20-22 hours per day," the Shanghai analyst said.

However, actual demand for finished steel products among end-users remained flat, and the increase in steel prices proved an inhibiting factor for steelmakers' sales, Mysteel Global learned. "Some mills decided to scale back their production after seeing their steel sales falter," the analyst observed.

Meanwhile, "the sudden drop in daytime temperatures across some regions caused many workers to catch colds and flu, and a few mills have had to reduce operations because of labor shortages," he added.

Besides, the climb in production costs may lead more EAF mills to become cautious regarding production, as the recent increase in steel scrap consumption has driven up scrap prices, Mysteel Global noted.

As of December 8, the cost of producing construction steel items incurred by the 40 sampled independent EAF mills averaged Yuan 3,961/t, higher by Yuan 17/t on week, according to Mysteel's assessment. The same day, Mysteel's national steel scrap price had risen by Yuan 13.4/t on week to reach a two-month high of Yuan 2,949.8/t including the 13% VAT.

Written by Anthea Shi, shihui@mysteel.com

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