Shanghai Steel Drops After Rally, But Output Cuts Cap Losses

18 August 2016

China home prices show signs of fatigue in July

Steel production cuts stirring iron ore demand worries -CBA

By Manolo Serapio Jr

MANILA, Aug 18 Chinese steel futures fell on Thursday, retreating further after this week's rally to a near four-month high spurred by Beijing's efforts to curb excess capacity.

Those efforts, including a fresh round of production cuts in the major steel producing city of Tangshan amid tighter environmental rules, should keep steel prices elevated, traders said.

"The production cuts will affect supply of steel to the market, so prices will have good support," said a Shanghai-based trader.

The most-active rebar on the Shanghai Futures Exchange was off 0.7 percent at 2,553 yuan ($385) a tonne by midday. The construction steel product touched a high of 2,687 yuan on Tuesday, the loftiest since April 25.

Signs that China's housing market cooled in July after gains in the first half of the year also dampened market sentiment.

January iron ore on the Dalian Commodity Exchange gained 0.2 percent to 437.50 yuan a tonne.

Weaker futures on Wednesday dragged down spot iron ore prices, with material for delivery to China's Tianjin port .IO62-CNI=SI slipping 1.1 percent to $61.10 a tonne, according to The Steel Index.

"Iron ore demand concerns are growing after Chinese authorities ordered steel mills in the Yangtze River region to cut crude steel and sintering output by 50 percent during the G20 summit from August 23 to September 9," Commonwealth Bank of Australia analyst Vivek Dhar said in a note.

The measures are meant to improve air quality during the G20 summit on Sept. 4-5 in China's eastern city of Hangzhou.


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