According to many market sources, more Chinese mills have redirected their molten steel to flat rolled items rather than longs, as the margins for cold-rolled steel are extremely good.
1. More Chinese mills have switched to flat rolled steel production
More and more Chinese mills have switched from longs to flat steel production a month and half ago, after considering the business efficiency. Some diverted all the steel from their converters to flat steel production while some kept very limited production of long steel. It is due to the high profit of flat steel in comparison to long steel’s.
For some companies, the gross profits for flat steel are as high as Yuan 800-900/tonne ($122.3-137.6/t). Meanwhile, long steel only earns at Yuan 100-200/tonne. In section steel of certain specifications, some mills are even making losses.
2. Rebar output continued to decrease
According to Mysteel’s latest survey across 184 steel mills nationwide, rebar output decreased for the second straight week (from December 3-9). In detail, it slipped by another 44,100 tonnes (~1.2%) to 3.55 million tonnes. Meanwhile, HRC output reversed up by 10,500 tonnes (~0.3%) oto 3.29 million tonnes. One survey respondent confirmed that these changes (reduction in rebar output and the increase in HRC output) has to do with the conversion of mills’ production to flat steel production.
However, the change of volumes resulting from the switchover may not be as big as many have expected. It is due to the fact that the capacity that can be readily converted is very limited in China.
3. The steel production output will be back to normal in coming time
The output might be back to normal soon, as not many steelmakers in China are covering the full scope of products. Many mills are specialized in producing either long steel or flat steel. fewer than twenty mills – and mainly large-sized ones at that– have such a capability.
Moreover, the profits from producing longs, though smaller than for flats, remain positive. This may limit the volumes redirected in the coming time.
According to Mysteel’s survey, the profits of blast furnace-based mills producing rebar averaged Yuan 300/tonne, before the iron ore price spikes. Meanwhile, those of the electric-arc-furnace mills were around Yuan 200/tonne.