FOCUS: China power shortages to slash demand for imported semis, scrap

Further reductions in Chinese steel mill operations due to ongoing power shortages are likely to hamper demand for imported semi-finished steel and steel scrap in the country, sources told Fastmarkets this week.

Draconian restrictions on power supplies in China have led to a raft of electric arc furnace (EAF) steelmakers and re-rollers in key provinces such as Jiangsu, Yunnan and Zhejiang to either scale back operations, or to close altogether earlier this month
But worsening power outages across the country this week have led to fears of further mill shutdowns, sources told Fastmarkets.
“The power shortage has spread from South China to North China, so some mills cut their capacity by 50% and the situation may last longer than you might think. This electricity cut is affecting all production areas, not just steel,” a trading source based in Zhejiang province said on Monday September 27.
“The electricity restriction is serious and even rolling mills cannot work. Demand is not [there] and this has dragged down the China import market for steel billet,” a Singaporean billet trader source said on September 27.
Fastmarkets’ price assessment for 3sp-grade steel billet, import, cfr China was $700-708 per tonne on Tuesday September 28, down $10-12 per tonne from $710-720 per tonne on Friday.
And the electricity cuts have also had a significant effect on Chinese steel scrap markets.
The suspension of some EAF mills has led to lower demand, while some scrapyards in Fuoshan have stopped operating altogether due to the electricity rationing, according to sources.
“There are mixed signals in the [scrap] markets. The slowdown in EAF production is hurting demand,” a Chinese scrap industry analyst told Fastmarkets.
Impact on prices
How the power shortages affect finished steel prices in the coming weeks will be a key issue.
Although the shutdowns will reduce demand for scrap and semi-finished steel, prices for these materials may still find some support should finished steel prices keep rising in the country, sources said.
“Energy prices are [rising] worldwide, which caused the power restrictions in China. This will surely affect iron ore markets, but it is hard to predict if steel prices will be boosted right now because downstream demand is another factor to take into account,” a eastern China steelmaker sources told Fastmarkets.
Some Chinese finished steel prices have increased in recent weeks due to a lower output caused by the porched. For instance, Fastmarkets’ assessment for steel reinforcing bar (rebar) domestic, ex-whs Eastern China was 5,780-5,820 yuan ($895-901) per tonne on September 28, up by 560 yuan per tonne from August 31.
Rebar is one of the major downstream products rolled from billet and about one-third is produced by EAF mills, so production slumped significantly in September.
Chinese rebar output totaled 2.71 million tonnes in the week to Thursday September 23, down by 640,000 tonnes, or 19%, from 3.35 million tonnes in the week to September 2, according to a local industry information provider.
A Chinese billet buyer source said he predicted stronger market dynamics for both rebar and hot rolled coil (HRC) in the short term because many of the rolling mills that transform semi-finished goods into these finished products have closed due to the power restrictions.
“At the same time, bullish sentiment in the finished steel markets has caused some suppliers to hold back from selling scrap and the restrictions on scrapyard operations are causing disruptions to regional flows of scrap. Scrap prices may rise, but only slightly,” the scrap analyst said.
Demand doubts
Demand for Chinese rebar has not been as buoyant as expected in this seasonally-strong period of the year, however, and that fact might still undermine prices across the ferrous supply chain, according to sources.
“Average daily sales volumes of rebar [have been] around 220,000 tonnes over the past week - 30,000 tonnes lower than the level in the corresponding period of last year,” a steel industry analyst said.
“The housing company Evergrande’s financial troubles have caused a few of its projects to be suspended, and some other housing companies are also [being] cautious about their debt ratios,” a rebar trader in Shanghai said.
“This will lead to lower operation rates in construction sites in the fourth quarter and then push down rebar demand,” he added.
Sources said they expected imports of steel billet and steel scrap to remain slow in the run-up to, and during, China’s National Day holiday on October 1-7.

Lee Allen

lee.allen@fastmarkets.com

Jessica Zong

jessica.zong@fastmarkets.com

Tianran Zhao

tianran.zhao@fastmarkets.com

Published

Lee Allen

Jessica Zong

Tianran Zhao

September 28, 2021

16:53 GMT

London, Singapore, Shanghai