China power curbs are challenge for steel mills - industry group

BEIJING, Oct 25 (Reuters) - Production costs at Chinese steel mill have increased, especially at electric arc furnaces, because of recent power rationing and government demands for energy consumption cuts, the country's steel association said on Monday.

Steel mills have cut or halted production because of the power supply crunch since September, which will "significantly increase companies' costs" and weigh on their profitability, Qu Xiuli, the vice chairwoman of the China Iron and Steel Association (CISA), said at a news conference.

The world's second-largest economy has suffered from the power curbs because of high coal prices for generators amid tight supply of the fuel, leading to companies ranging from upstream metalmakers to downstream fabricators slowing down activities as the government vowed to prioritise residential power consumption.

Daily crude steel output last month plunged to the lowest level since December 2018, official data from the statistics bureau showed.

Capacity utilisation rates at electric arc furnaces (EAF), which consume double the electricity to produce a tonne of steel compared with blast furnaces, dived more than 20% year-on-year at the end of September, before recovering slightly in October, according to Mysteel consultancy.

Huang Dao, deputy secretary general of the CISA, said at the news conference that energy consumption and production controls bring big challenges and pressures to steel producers, especially for EAFs because of possible increases in electricity fees in the future.

China's electric arc furnaces account for around 10% of its total steel output. The country aims to bring the proportion to 15%-20% by 2025 as the short metallurgy process conserves energy and reduces emissions, while it also eases China's reliance on imported iron ore.

"If taking account of green electricity, the advantage of lower carbon emissions from EAF production is much more obvious than blast furnaces," said Huang.

Qu said she expects the impact from power curbs on mills to improve next year as Beijing steps up efforts to increase coal output, and the long-term target of electric arc furnace development remains unchanged.

But electric arc furnace companies should make more high value-added products such as special steel and stainless steel to transfer rising costs with higher sales prices, Qu added.