Chinese iron ore futures surged nearly 7 percent to their strongest level since March on Monday, supported by strong margins at China’s steel producers as Beijing’s anti-pollution fight tightens supply in the world’s top producer.

China’s eastern Shandong province is the latest to unveil plans to cut steel capacity, as part of a broader nationwide environmental push. Shandong said it would cut pig iron production capacity by 600,000 tonnes and crude steel by 3.55 million tonnes by the end of this year, part of a three-year action plan.

The price gains also came after China proposed retaliatory tariffs on $60 billion worth of U.S. goods on Friday, as a senior Chinese diplomat cast doubt on prospects of talks with Washington to solve their trade conflict.

The most-traded September iron ore contract on the Dalian Commodity Exchange climbed as much as 6.5 percent to 512.50 yuan ($75) a tonne, its loftiest since March 9, and was trading up 4.4 percent at 502 yuan by 0226 GMT.

“Iron ore prices are driven by strong steel margins, and there’s more to come,” said a Singapore-based iron ore trader.

Profit margins at Chinese steel mills are currently around 1,100 yuan a tonne, Haitong Futures said in a report, near record levels in December.

Iron ore was playing catch-up to steel prices which have rallied in recent weeks in light of China’s sustained anti-pollution push.

The most active October rebar on the Shanghai Futures Exchange touched a 5-1/2-year high of 4,243 yuan per tonne on Aug. 1. It was flat at 4,164 yuan on Monday.

Apart from cities and provinces curbing output ahead of winter, China is also planning to impose industrial production curbs during winter for the second year in a row, likely running from Oct. 1 to March 31, 2019.

The utilisation rate at steel mills’ blast furnaces across China slipped to 66.99 percent, the lowest since April 13, according to Mysteel consultancy.

With most curbs also covering coke producers, coke futures rose 2.9 percent to 2,455.50 yuan a tonne after earlier peaking at 2,459.50 yuan, the strongest since September last year.

Coking coal was last up 3.6 percent at 1,235.50 yuan a tonne, after earlier hitting 1,239 yuan, the highest since June 19.

 

Source: in.reuters.com

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