FMG (ASX) Iron ore price

Originally posted by defabs ↑

Hi E,

Perfect timing with that post E. I was just about to post the following article released today by SMM. See article below.

EAFs are going to be in the doldrums for a long time yet. There is just no incentive to produce. They closed early for maintenance prior to CNY even before Coronavirus became an issue as margins were negative.

I posted recently that steel produced using EAFs in the first half 2019 made up 20% of steel production. Even if overall steel demand softens in the next couple of months, steel demand using IO as an input would likely not soften in proportion given how poorly the margins are of EAFs.

All pretty pretty relevant IMO

Smm Insight
Feb 10,2020
SHANGHAI, Feb 8 (SMM) – All major electric arc furnace (EAF) steelmakers in Hubei province, the hardest hit region amid the coronavirus epidemic outbreak, have been closed, showed an SMM survey, as losses deepened.

As of Thursday February 6, EAF steelmakers could see a loss of 387 yuan/mt on rebar, according to SMM calculations.

Significant losses, coupled with a potential shortage of labour force amid the outbreak, are likely to prompt EAF steelmakers in Hubei to further delay their resumption, even as Hubei authorities said that enterprises could resume work from February 14.

Blast furnace (BF) steelmakers in Hubei, however, are maintaining normal production, but fears of raw material supply shortages are growing as the region remains locked down.

Hunan, which is bordered by Hubei to the north, is also beleaguered by logistics constraints. BF steelmakers in Hubei and Hunan told SMM that their existing stockpiles of raw materials could ensure normal production for a maximum of 30 days, which means that they will have to curtail production sharply if the epidemic has yet to be effectively curbed by early March.

SMM data showed that crude steel capacity in Hubei accounts for 3.85% of the nationwide total.

Coronavirus
Steel

Expand

I’ve posted about EAFs and their falling profitability recently. Capacity utilisation rates have effectively dropped to near 0%.

They were unprofitable prior to Corona and the decline in rebar prices will only prolong their shutdown.

Also Mysteel reporting that days cover of scrap are declining and a lower % of scrap being used to feed into the blast furnaces.

About 20% of steel output comes from scrap inputs. Approx 1.4 metric tonnes of IO are needed to produce 1 metric tonne if steel. If scrap % lowers, then a large amount of IO is needed to substitute the lower scrap usage to maintain the same level of steel output.

Ie 20mt of less scrap say from EAF closures mean 28mt more IO to maintain same level of steel output.

It’s all very interesting but the scrap/EAF market looks to have grinded to a standstill

It’s being overlooked at the moment and quite material IMO

.............

Mysteel:

China’s blast furnace (BF) steel mills are now reducing their consumption of steel scrap in both their ironmaking and steelmaking processes to nurse what inventories they have, Mysteel Global learned Wednesday. The mills’ steel scrap inventories at hand are decreasing daily as scrap deliveries to their yards have declined, chiefly because of the Chinese New Year (CNY) holiday break and because of the outbreak of Novel Coronavirus Pneumonia, a Shanghai-based market watcher explained.

........

SHANGHAI, Feb 14 (SMM) – As the coronavirus （COVID-19) outbreak disrupted shipments from steel mills and trigger production cuts or maintenance, shortage of steel scrap may expand the cutback and result in a significant decline in crude steel output in February.

An SMM survey indicates that the amount of molten iron daily production affected by cutback and maintenance at steelmakers has increased from less than 100,000 mt on January 23 to nearly 300,000 mt as of February 13.

China has a total amount of scrap steel resources of 240 million mt in 2019, up 9% from a year earlier, showed statistics of the China Association of Metal Scrap Utilisation. But currently supply tightness still dominates the steel scrap market, according to SMM survey, as the epidemic prevented some scrap processing companies from returning operations, and transportation curbs disrupted purchases of some steel mills.

Some steelmakers have halted procurement of scrap and turned to produce scarp on their own. They also reduced the proportion of steel scrap used in raw materials, which is set to weigh on their near-term production.

A steel plant in central China has cut its monthly production of hot-rolled coils from the previous 400,000 mt to 290,000 mt, due to disrupted supply of steel scrap.

Prices of steel scrap have slipped 1.7% from the pre-holiday levels, SMM assessed as of February 13. This, compared with a drop of 8.3% in rebar prices, squeezed margins at electrical arc furnace (EAF) steelmakers. Losses at EAF steel mills have widened to 417 yuan/mt from 157 yuan/mt before the holidays, and this accounted for the recent shutdown of a slew of producers.

Steel scrap prices held relatively firm (Source: SMM)

Profits at EAF steelmakers slipped (Source: SMM)

Operating rates of scrap-using steel mills fell to low levels (Source: SMM)

With the increase in steel scrap usage in steelmaking over the recent years, steel scrap has accounted for around 20% of the crude steel production. SMM calculates that a reduction of 1% in the proportion of steel scrap in raw materials mix will cause a decline in crude steel output by 15 million mt.

SMM expects steel scrap shortage and elevated in-plant inventories will likely expand the maintenance or production cut at steelmakers.