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Costs, slow demand idle Tangshan section mills

12 Jun 2018 11:17 (+01:00 GMT)
Costs, slow demand idle Tangshan section mills

Singapore, 12 June (Argus) — Structural steelmakers in the Chinese city of Tangshan are idling production because of weaker demand and negative margins, reducing billet spot trade in the slower summer construction season.

"Nearly half of local rolling mills have stopped production because of high costs and meager margins or even losses," an official at a Tangshan billet producer said.

Chinese mills use billet to make section steels such as H-beam and I-beam, as well as rebar, wire rod and narrow hot-rolled strip with width up to 235mm. North China billet spot trade accounts for only a small fraction of China's total production because most billet is consumed within integrated steel mill operations. But smaller mills' active participation in the spot market keeps the main Tangshan posted ex-works billet price as a key indicator for China's steel sector.

In Tangshan, rebar producers' end-use demand remains stable, supporting that segment's billet use. But section steelmakers say their end-use demand is sluggish, forcing them to shut down until market conditions improve. One rolling mill halted production on 1 June and does not plan to restart until 15 July.

The Tangshan billet price rose by 20 yuan/t to Yn3,690/t today. Angle steel #5 with 50mm side length is priced at Yn3,960/t. Costs of Yn3,690/t for billet, Yn60/t freight and Yn220-250/t for rolling puts total costs at Yn3,970-4,000/t, leaving narrow or negative margins.

By comparison, billet makers have plenty of room on margins. Argus estimates that Tangshan billet makers have margins of around Yn850/t, based on costs of Yn2,200/t for pig iron, Yn2,260/t for scrap with a 15pc charge ratio, and Yn500/t in billet processing costs.

China iron and steel association (Cisa) members' crude steel output fell in late May from its all-time high in mid-May. The member mills reported average output of 1.955mn t/d over 21-31 May, down by 2.39pc from the previous 10-day period. Member mills' steel stocks fell by 15pc to 11.835mn t at the end of May from 10 days earlier.