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Poor steel production margins have prompted steelmakers to reduce operating rates through blast furnace maintenance ahead of the Chinese Lunar New Year, but most steel mills are likely to see high rates during the break, leading to firm iron ore demand, steel mill sources said.
Some market sources said steel mills in North China have maintained a 7-14-day iron ore stock but may continue to replenish iron ore from the portside before holidays.
A Shandong-based steel mill source said, “We have a blast furnace that is undergoing maintenance and is expected to be completed before the holiday.” The source added that they would maintain high operating rates during the holidays.
A Jiangsu-based steel mill source said that due to the decline in iron ore prices and domestic coke prices, production margins increased slightly from a week ago.
“We would keep high operating rates during the break,” the source said, adding that they held more than 20 days of raw material stock.
Some steel mills chose to increase the frequency of iron ore restocking but reduce the amount of the restocking volume in each round.
“Small quantity but increased frequency of purchases,” an Anhui-based steel mill source said, adding that it would have less impact on the market price. The source said they have finished the first two rounds of restocking.
Most of the steel mills would continue their iron ore restocking activities from China portside till the last week before the holidays to support the high operating rates during the Lunar New Year holidays, sources said.
Construction sites in multiple regions in China would stop working during the break.
Some market participants were concerned that the high crude steel output and lackluster downstream steel demand during the break could put pressure on the finished steel prices and dampen the production margins. This would likely affect the operating rates of steel mills after the holiday, which may lead to lower iron ore demand.
However, a steel mill source in Jiangsu said they believed that steel demand would likely get support from the country’s policies.