Shanghai steel ekes out gains, iron ore recovers from 7-week low

2 February 2018

Chinese steel futures ticked higher on Friday amid news that China’s top steelmaking city is looking at extending production curbs beyond winter, even as the government of the province where it is located said it had no such plans.

Three sources familiar with the matter told Reuters that Tangshan city in Hebei province is discussing keeping the restrictions after the winter heating season ends.

China has ordered steel mills to reduce output by up to half from Nov. 15 to March 15 as part of the country’s campaign against air pollution. Hebei’s provincial government on Thursday denied reports it had sought an extension.

The most-active rebar contract for May delivery on the Shanghai Futures Exchange was up 0.2 percent at 3,949 yuan ($629) a tonne by 0323 GMT.

A potential extension of steel production curbs in Tangshan “would mean a much tighter market,” said Daniel Meng, analyst at CLSA in Hong Kong.

Tangshan produces 12 percent of China’s steel and just cutting its output by a quarter would mean reducing national output by 3 percent, Meng said.

”That 3 percent is quite big in today’s steel market because without any curtailment in the normal months like in July-October last year, the market was already very tight and margins were about 1,000 yuan (per tonne).

“You cut production by another 3 percent and margins will remain very high for a longer period,” Meng said.

The most-traded May iron ore contract on the Dalian Commodity Exchange climbed 1.3 percent to 514.50 yuan a tonne, rebounding from Thursday’s intraday low of 503.50 yuan, the weakest since Dec. 15.

“I think it was just a technical recovery,” said an iron ore trader in Shanghai. “But we should see prices under pressure again as we’re getting close to the holidays and trading activity will slow down.”

Many workers in China began returning home this week, he said, ahead of the week-long Lunar New Year holiday that starts on Feb. 15.

“We heard many mills in Tangshan are running at half their capacity and are starting to be on skeletal workforce,” the trader said.

Iron ore for delivery to China’s Qingdao port .IO62-CNO=MB was little changed at $72.88 a tonne on Thursday, according to Metal Bulletin. The spot benchmark has lost 2 percent so far this week, on course for a third weekly fall.