Heavy losses continue to hold back China's electric furnace (EAF) steel output

Output at China’s electric arc furnace (EAF) steelmakers continued to slow this week as mills’ operations continued to be hit by the negative margins they incur on finished steel sales, according to the latest survey by Mysteel.

Between June 20 and 26, the average capacity utilization rate of 90 independent EAF steelmakers regularly tracked by Mysteel fell for the fifth consecutive week, albeit by just 0.04 percentage points, to 54.5%.

The operating rate of the 90 sampled mills fell 0.8 percentage points week-on-week to 70.1% during the same period, according to the survey.

This week, some small steel mills in Southeast China's Fujian, Central China's Hubei and East China's Jiangxi stopped production to start overhauls, resulting in an average steel output drop of 10,100 tonnes/day at the sampled mills, the survey showed.

Mysteel noted that although some mills in Hubei completed routine maintenance and resumed operations this week, the capacity of the restarted facilities was relatively smaller.

The main factor that caused many mills to suspend production was that they continued to incur losses from selling steel, as scrap steel prices are more resilient than finished product prices, according to another Mysteel survey.

As of June 26, the average loss on rebar sales reported by 62 independent EAF steelmakers tracked by Mysteel was 136 yuan ($19) a tonne, higher than the 126 yuan a tonne recorded a week earlier.

In addition, tight scrap supply coupled with weak steel demand from end users have forced small domestic steel mills to cut output, market sources said.

A Shanghai-based market observer said: "Some EAF mills have reduced working hours due to reduced orders from customers."

Some mills in southwest China plan to start maintenance checks next week, while others in east China will resume operations after completing overhauls, a Mysteel survey showed. Therefore, the run rate among domestic EAF steel producers is likely to remain stable, the survey results showed.

Source: Mysteel