Some Chinese steel mills raise output on higher price: sources

Singapore (Platts)--4 Aug 2015 541 am EDT/941 GMT

Some Chinese steelmakers have increased their operating rates after the recent rise in steel prices, industry sources said Tuesday.

Many Chinese steelmakers idled furnaces in June for maintenance when oversupply and an economic slowdown in China hit steel prices.

The physical steel square billet price in Tangshan -- a barometer of steel fundamentals in China's core production hub -- fell to a historical low of Yuan 1,670/mt ($272.17/mt) ex-stock on July 8, but has since recovered to Yuan 1,870 ex-stock Monday as concerns over a mandatory production cut in northern China boosted prices.

A company source said state-owned steel producer Fujian Sangang increased its operating rate to 90% of capacity from 80% in June.

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It has crude steel output capacity of 7.5 million mt/year and produces mainly rebar.

Guangxi Liuzhou Iron and Steel in southwestern China restarted two blast furnaces in July after the units were idled for maintenance in May due to poor demand.

"We are still making some slight losses but we need to get cash flow for our operation, and the recent recovery in steel price makes it more palatable for us to increase our output level," a Liuzhou Steel source said.

But not all steelmakers were raising their output because steel demand has not yet shown a sustained recovery. Those increasing production were mostly in the south.

Additionally, a steelmaker source in eastern China said mills in the north are being asked to cut output ahead of a September 3 parade in Beijing to commemorate the 70th anniversary of the end of World War II.

"Many mills near Beijing will be mandated to reduce their steel output so as to ensure a clear blue sky in the capital," the source said. "Mills in the south that not affected by the output cut are producing as much as possible so that they have steel products on hand to sell when steel prices are expected to hike by end of this month."

Platts IODEX 62%-Fe physical iron ore assessment was at $55.75/dry mt CFR Qingdao Tuesday, up $11.25 or 25.3% from the all-time low of $44.50/dmt on July 8.

But not all Chinese steelmakers are able to buy more iron ore given tight credit and low steel margins, so these producers have chosen not to raise run rates.

"We are not able to produce more [steel] as our cash flow is tight, we can ill afford to buy more raw materials even though steel prices have rebounded lately," a source from a state-owned steel-making enterprise in southwestern China said. This producer was operating their plant at only 50% of capacity.

Other sources also said that an increase in operating rates might not always translate into a hike in feedstock iron ore prices because cash-strapped steelmakers would elect to keep iron ore inventories low while steel demand remained unclear.

--Melvin Yeo,
--Han Lu,
--Edited by Jonathan Dart,

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