【Electric Arc Furnace Steel】Challenges Ahead, Opportunities Await

As the Spring Festival approaches, domestic steel demand remains weak, with end-users and traders showing little interest in winter stockpiling. However, market sentiment has been bolstered by expectations that the domestic policy vacuum will end as Trump's inauguration approaches, coupled with surprisingly strong U.S. non-farm payroll data. This has driven a consecutive rise in commodity futures, providing some support to the spot market. As of January 16, the average domestic rebar price stood at 3,369 yuan, up 32 yuan from last Friday.

Raw Materials: This week, the scrap steel market experienced weak supply and demand. Many EAF steel mills began halting production and procurement midweek, while upstream supply was also significantly impacted. Scrap deliveries to steel mills have declined notably, and rising hot metal costs have prompted some long-process steel mills to raise prices to secure materials. Graphite electrodes are mainly used to melt scrap steel in the electric arc furnace (EAF) steelmaking process. The electrode is made of graphite and can withstand high temperatures.

With scrap prices climbing, EAF steel production costs have risen this week, leading to a slight reduction in profits and a sharp drop in operating rates. By January 16, the capacity utilization rate of 135 EAF steel mills nationwide fell to 41.18%, down 4.74% from the previous week, with daily EAF steel output at 257,800 tons, marking the 12th consecutive weekly decline.

Outlook: The market has largely absorbed the impact of U.S. tariff policies. Ahead of the Spring Festival, the overall market is expected to trend steady with a slight upward bias. EAF steel mills are set for another wave of shutdowns and holidays starting January 20. Consequently, next week's EAF steel output will drop significantly, leaving the scrap market in a high-price but low-transaction state.

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