Chinese steel futures swing to gains as Beijing curbs new capacity

9 January 2018

Chinese steel futures swung to gains in late trading on Monday after the industry ministry issued new guidelines restricting the replacement of obsolete steel mill capacity.

China’s Industry and Information Technology Ministry said in a statement on Monday that it would allow one tonne of new capacity to be built for each 1.25 tonnes closed in key regions, reinforcing expectations that Beijing will deepen efforts to cut steel capacity and keep it from increasing.

The most active rebar on the Shanghai Futures Exchange rebounded 0.7 percent to 3,818 yuan ($588.53) a tonne by close, even as demand wanes in the world’s top producer.

Steel demand typically weakens in winter as low temperatures curb activity in the construction sector, a key user the metal.

“The statement raised market expectations that China will act to restrict new steel production capacity to be built,” said a steel trader in Shanghai. He declined to be identified as he was not authorised to speak with media.

Iron ore on the Dalian Commodity Exchange was boosted by the steel gains, rising 3 percent to 555.5 yuan a tonne. The raw material was also buoyed by expectations that steel mills will pick up restocking of iron ore ahead of output recovery in March.

Steel mills have been curbing production since mid-November, when the government ordered them to reduce output until mid-March to rein in smog.

Coke jumped 1 percent to 2,089.5 yuan a tonne and coking coal rose 3 percent to 1,390.5 yuan a tonne.

Iron ore for delivery to China’s Qingdao port .IO62-CNO=MB inched up $0.26 to $76.8 a tonne last Friday from the day before, according to Metal Bulletin.