Shanghai steel hits 7-year high as output curbs continue

23 August 2018

Shanghai rebar steel futures scaled a seven-year high on Wednesday as China’s sustained production restrictions to fight smog kept supply tight in the world’s top producer.

The price of the construction steel product has risen nearly 30 percent this year and could strengthen further with construction activity expected to pick up ahead of further output curbs in winter.

The most actively traded January rebar on the Shanghai Futures Exchange rose more than 1 percent to 4,418 yuan ($643) a tonne, its highest since September 2011. It was up 0.5 percent at 4,392 yuan by midday break, putting its year-to-date gain at 28 percent.

“In view of this consistency in China’s policy in reducing pollution, I’m confident that steel prices will be supported by these production cuts in the longer term,” said Argonaut Securities analyst Helen Lau.

“There’s also a lot of construction activity in autumn that will drive demand.”

Apart from ongoing production curbs implemented by Chinese cities including top steel producer Tangshan, northern mills will be required to cut capacity by 30-50 percent over winter, the second straight year such measures will be enforced.

Tangshan will enforce emergency pollution-reduction measures from Tuesday till Aug. 27, as the city government said it expects to see adverse weather conditions that would worsen the pollution levels in the region.

Among steelmaking raw materials, coking coal futures on the Dalian Commodity Exchange climbed as much as 4.1 percent to 1,362.50 yuan a tonne, the highest since March 1.

The rally in coking coal came after the surge in coke prices last week.

Coke is the processed form of coking coal and curbs in coke production, which is also covered by China’s anti-pollution campaign, had sent prices to a record high on Friday, breeding hoarders amid fears of further output restrictions as inventories dropped to two-year lows.

Coke futures were up 1.3 percent at 2,639 yuan a tonne. Iron ore slipped 0.1 percent to 496.50 yuan.

Spot iron ore for delivery to China’s Qingdao port .IO62-CNO=MB fell 1.9 percent to $66.54 a tonne on Tuesday, according to Metal Bulletin. It was the lowest level since Aug. 26 for the spot benchmark which has lost 8.4 percent this year.