The country's goal
of achieving a 15% share of steel production in the EAF by 2025 looks somewhat
optimistic
China is experiencing a reversal in scrap
usage, and the country’s goal of reaching a 15% share of EAF steel production
by 2025 looks optimistic. This opinion was expressed by analysts at investment
bank Morgan Stanley, Kallanish reports.
The cyclical and long-term problems that have led to
lower-than-expected scrap utilization are unlikely to change in the short term,
with iron ore and coking coal being the beneficiaries of the situation.
According to a Morgan Stanley research note, the
country’s scrap utilization is at its lowest level in six years.
«We believe that China’s protracted deflation and declining steelmaking
profits will persist for a long time, hence the rise in iron ore prices,» the
analysts said.
Morgan Stanley is becoming increasingly cautious about
China’s ability to rapidly increase scrap volumes.
The investment bank estimates the share of converter
production in the country at 91%, which is the same ratio as last seen in 2017.
The expected use of scrap reflects this trend. In addition, only a slight or
moderate increase in these volumes can be expected this year.
China’s ambitions to produce steel in electric arc
furnaces using scrap remained unrealized, but not due to a lack of capacity.
Since 2017, the country has invested 110 million tons per year of new EAF
capacity as part of a replacement program. But their average utilization rate
is 60%.
The use of scrap in oxygen-converter steelmaking
increases when profits are high and steel mills want to increase volumes.
However, according to Morgan Stanley, the current situation is characterized by
declining profits, and it will not change in the short term.
In addition, EAF’s steel production was
disproportionately affected by the downturn in the real estate market, which
affected demand for long products. The fact that BOF furnaces still account for
the lion’s share of this output indicates that the economics of using electric
arc furnaces are not sustainable.
The underdeveloped scrap collection in China and reduced
economic incentives for collecting and processing this raw material are
additional reasons for the lag in its use.
As GMK Center reported earlier, Chinese
steelmakers produced 1.019 billion tons of steel in 2023, up
0.6% from 2022. Thus, the downward trend in the country’s steel industry has
stopped after two consecutive years of declining production. Last year, China’s
pig iron production totaled 871 million tons, up 0.7% year-on-year.