Shanghai steel resumes gains as China prepares winter curbs
3 August 2018
Shanghai rebar steel futures edged higher on Friday, trading back near a 5-1/2-year high, amid China’s plans to impose industrial production curbs during winter for the second year in a row.
Coke prices also spiked on the planned restrictions, hitting their strongest level since mid-September.
In the latest plan to be implemented from Oct. 1 to March 31, 2019, steel mills in six key cities - Tianjin, Shijiazhuang, Tangshan, Handan, Xingtai and Anyang - will be asked to cut 50 percent of their capacity during the heating season.
Those in the rest of the smog-prone Beijing-Tianjin-Hebei region will need to shut no less than 30 percent, according to a draft proposal.
The steps would be largely similar to those imposed last winter, which was operational between Nov. 15, 2017 and March 15, 2018, that forced steel mills, coke producers, smelters and other industrial plants to cut output to limit pollution.
The most active rebar on the Shanghai Futures Exchange was up 1.2 percent at 4,170 yuan ($607) a tonne, as of 0210 GMT, after initially peaking at 4,186 yuan, near Wednesday’s 5-1/2-year high of 4,243 yuan.
The construction steel product has risen more than 2 percent so far this week, the most in three weeks.
“Assuming key focus areas cut 50 percent of capacity while the rest of the areas ... cut 30 percent, we estimate the steel production impact at 78 million tonnes during the winter period,” Morgan Stanley analysts said in a note.
That volume corresponds to 9 percent of China’s crude steel output in 2017.
Prices of coke, the processed form of coking coal, also jumped amid the planned production restrictions. The most-traded September coke on the Dalian Commodity Exchange climbed as far as 2,402 yuan a tonne, the highest since Sept. 14. It was last up 3.5 percent at 2,383 yuan.
Iron ore futures rose 1.3 percent to 479.50 yuan per tonne, and coking coal inched up 0.3 percent to 1,187.50 yuan.
Spot iron ore for delivery to China’s Qingdao port gained 0.5 percent to $66.87 a tonne on Thursday, according to Metal Bulletin.