Shanghai steel slips as Chinese producers boost output

16 March 2018

Shanghai steel futures dropped on Friday as Chinese producers ramp up output with the lifting of winter curbs aimed at fighting smog.

China shut down up to half of its steel production during winter in 28 cities in the country’s manufacturing heartland in the north as part of an anti-pollution campaign.

With profit margins remaining strong, steel production is expected to increase as the restrictions - in place from Nov. 15 to March 15 - ended even as some cities including top-producing Tangshan extend the curbs.

Rebar for May delivery on the Shanghai Futures Exchange had eased 0.4 percent to 3,733 yuan ($590) a tonne by 0142 GMT.

“In the short term, the lifting of winter steel production restrictions and concerns about the impact of U.S. import tariffs on demand could see prices weaken,” ANZ analysts said in a note.

While steel shipments from China account for a small portion of U.S. steel imports, any retaliatory action from China and other countries would not bode well for the global economy, analysts say.

The softer steel futures weighed on raw material iron ore with the most-traded contract on the Dalian Commodity Exchange falling 1 percent to 484.50 yuan per tonne.

Iron ore for delivery to China’s Qingdao port .IO62-CNO=MB edged up 0.7 percent to $72.11 a tonne on Thursday, according to Metal Bulletin, tracking firmer futures in the previous session.

“We see the risk of iron ore prices falling back through $70 a tonne as relatively high, in the short term,” the ANZ analysts said.

The spot iron ore price dropped below $70 earlier this week for the first time since December, before regaining some lost ground as the market looked to a pickup in China’s construction activity as spring arrives.

Coking coal futures gained 0.4 percent to 1,291.50 yuan a tonne and coke was off 0.2 percent at 1,993.50 yuan.