China steel hits nine-week peak amid crackdown, lifts iron ore

22 May 2017

Chinese steel futures jumped nearly 6 percent on Monday to their highest since March, stretching last week's gains on concerns over limited supply as Beijing keeps up a campaign to clamp down on polluting producers.

Tangshan city in Hebei province, China's biggest steelmaking region, earlier this month kicked off efforts to suspend and fine mills that fail to meet emission standards. The campaign began on May 9 and will run through the end of the month.

Prices of billet, a semi-finished steel product, picked up steam last week as independent rolling mills who make these into finished products such as rebar, snapped up billet and the price increase spread to other steel products.

"I think some of the rolling mills have brought forward their purchases thinking supply may be at risk," said Richard Lu, analyst at CRU consultancy in Beijing.

The most-active rebar on the Shanghai Futures Exchange climbed as much as 5.7 percent to 3,366 yuan ($489) per ton, the highest since March 20. The construction steel product was up 5.3 percent at 3,355 yuan by 0228 GMT. But Lu said he was skeptical that price gains would be sustained unless demand strengthens.

"We don't think these environmental inspections will have significant impact unless the government can give a very clear order on production cuts and not just controlling emission levels."

"I believe a lot of these plants have already installed the necessary facilities to limit pollution," said Lu. As steel prices picked up pace, so did raw material iron ore.

The most-traded iron ore on the Dalian Commodity Exchange rose as far as 501 yuan a ton, its highest since May 4, and was last up 4.4 percent at 495 yuan.

Iron ore for delivery to China's Qingdao port rose 1.8 percent to $62.69 a ton on Friday, its strongest level since May 4, according to Metal Bulletin. The spot benchmark climbed 2.1 percent last week, its second such increase in nine weeks.