China's Shagang shuts 3 EAFs on weak domestic market

Singapore — Jiangsu Shagang, China's leading EAF scrap consumer has temporarily shut three of its electric arc furnaces given the severe weakness of the domestic steel market, and the inability to fulfill scrap deliveries within the country, a source from the mill told S&P Global Platts Wednesday.

A total 13,000 mt of daily EAF production capacity has been temporarily shut, with the first 90 mt EAF shuttered on February 11, followed by a 100 mt EAF on February 15, and their largest 110 mt EAF last week.

"EAF production has not been earning for a long time now in China due to high scrap prices and lowered steel margins," the source said. "In addition, is the difficulty in receiving scrap within the country due to the [corona]virus outbreak, and the even lowered steel demand."

Domestic rebar margins, produced by blast furnaces, were only at around Yuan 150-300/mt ($21-$43/mt) Wednesday, with the average down from Yuan 300/mt a year ago, domestic mill sources and traders said. In general, EAF production accounted for Yuan 300/mt in additional cost, Platts estimates showed.

Meanwhile, steel inventories within the country were reportedly "bursting" at the seams with many turning to the export market as a solution to alleviate the excess, other than production cuts, market sources said.

"The Southeast Asian market and economy too are severely affected by the virus," the source said. "Even Japan has cut their production by a chunk this month."

Subsequently, three of the company's bar rolling mills were also reportedly shut temporarily, according to a media report published February 23 by China Metallurgical News.

Shagang currently owns five EAFs with an annual production capacity totaling 5 million mt.