Reduced output from China's Sichuan steel mills unlikely to affect prices significantly

Steel mills in the Sichuan province of China had planned to reduce production from end-July owing to power curbs, but there has been no significant effect on domestic steel prices so far, as overall demand has remained weak, industry sources said July 5.

Some blast furnace mills in Sichuan will be curbing their power consumption by 20%-30% from their current capacity to keep air quality in check ahead of the World University Games, which are due to be held over July 28-Aug. 8, in the Chengdu city, sources said.

The electric arc furnace mills in the province might be asked to run nine hours per day during this period, according to sources.

So far, there is no big impact seen on total production, as the plan is yet to be implemented and most of the mills have already started staggered production to prevent power supply crunch in the summer peak consumption season, industry sources said.

"The EAF mills in Sichuan are operating at 12-13 hours per day, affected by both the sports event and high temperature," a local mill source said.

Most of the EAF steelmaking plants in the province had to shut their production in August 2022 due to power shortages.

Sichuan's total crude steel output reached 12.16 million mt in the first five months of this year, accounting for 2.7% of China's total, latest data released by the National Bureau of Statistics showed.

At the end of 2022, EAF mills accounted for 26% of the province's total production, but they aim to raise the ratio to 40% by 2025, a report released by Sichuan provincial economic and information department showed.

Rebar prices

Sichuan's development comes after recent output cuts announced at China's largest steelmaking hub Tangshan, which supported prices for two straight days in the week that started July 3.

However, overall steel demand has been weak, keeping the pressure on prices.

Despite the Sichuan output cut development, the prices of rebar futures on the Shanghai Futures Exchange have edged down, according to the exchange data.

The most-active rebar contract on SHFE -- for October delivery -- closed at Yuan 3,751/mt ($518/mt) on July 5, down 0.5% from the previous settled price, exchange data showed.

Demand at the domestic spot market is expected to remain weak in July as high temperatures in northern China and the rainy season in the south would impact consumption, according to sources.

Market participants are keeping a close watch on whether steel mills will be asked to maintain their 2023 crude steel output target at the 2022 levels.