China’s steel futures rose on Monday and were headed for a third session of gain in four on concerns of tight supply as the top steelmaking city of Tangshan started six weeks of more production cuts.

Tangshan, home to dozens of private steelmakers, ordered mills to deepen output cuts from July 20 until Aug. 31.

The government did not instruct factories to cut output by a certain amount, but two steel mills told Reuters they had shut 50 percent of sintering capacity and 30 percent of capacity at blast furnaces.

Benchmark Shanghai rebar futures were 0.5 percent higher at 3,999 yuan ($591.25) a tonne as of 0252 GMT, after gaining 4.7 percent last week, their biggest since early June.

Hot-rolled coil futures climbed 0.6 percent to 4,066 yuan a tonne.

Spot steel prices were little changed at 4,354.63 yuan a tonne on Friday, according to Mysteel consultancy.

“China’s restrictions on steel production are likely to ensure domestic steelmakers’ margins remain high,” ratings agency Fitch said in a statement.

The average profit margin reached 700-800 yuan a tonne at Chinese mills, one of the highest in the past year.

The utilization rate at blast furnaces of steel mills across China increased 0.13 percentage points from the prior week to 70.99 percent as of Friday, Mysteel data showed, as mills in the northwestern province of Shanxi resumed operations following the completion of regional environmental inspections.

Fitch warned that environmental measures would dampen demand as other heavy industries that consume large amounts of steel will be constrained by emission targets, but believes steel supply is likely to fall more sharply than demand over the winter.

An environmental official said at a conference on Saturday that production curbs in China’s steel sector would vary from mill to mill in the winter season based on the emission level at each mill, while a Tangshan official said environmental measures in the city will be more and more stringent until at least 2020.

The most-active iron ore futures on the Dalian Commodity Exchange gained 0.8 percent to 473 yuan a tonne on Monday.

Weekly stockpiles of imported iron ore at Chinese ports continued to rise for a second consecutive week, climbing 13,500 tonnes to 153.65 million tonnes on Friday, as frequent production curbs in northern China curtailed demand for steelmaking raw materials.

Dalian coke contract for September delivery jumped 1.5 percent to 2,067 yuan a tonne. Coking coal futures slipped 0.3 percent to 1,158.5 yuan.

 

Source: reuters.com

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