Steel, raw materials extend slump in China as flexible cuts eyed

12 September 2018

Prices of steel and its raw materials fell sharply in China for a second session on Wednesday, hitting multi-week lows, as more investors liquidated positions with oversupply risks rising as Beijing mulls a flexible implementation of its output curbs.

China is considering allowing its northern provinces to decide individual output cuts by heavy industry to rein in emissions during the winter, a source involved with the plan said on Tuesday.

That would be in contrast with an initial draft plan that called for cuts of 50 percent in steel production and 30 percent in primary aluminium in some areas, similar to last winter’s measures.

The most-traded January rebar on the Shanghai Futures Exchange was down 3.8 percent at 4,005 yuan ($582) a tonne by 0205 GMT, after falling as far as 3,993 yuan earlier, its weakest since Aug. 6.

Hot rolled coil was down 3 percent at 3,932 yuan per tonne, having touched a two-month low of 3,913 yuan initially.

China’s production restrictions as part of its fight to limit pollution had spurred a strong rally in steel prices since last year, pushing rebar to a seven-year peak and hot rolled coil to a record high in August.

With China potentially allowing individual provinces to set their own output curbs over winter, “this policy shift (may result in) oversupply when steel demand during the winter season is low,” said Argonaut Securities analyst Helen Lau.

“Local governments also tend to be more lenient on policy implementation when they are given flexibility, especially since increasing steel production will help boost jobs and add to government tax revenues,” she said.

Prices of steelmaking raw materials fell alongside steel, led by coke, the processed form of coking coal.

Coke futures on the Dalian Commodity Exchange fell as much as 4.7 percent to 2,220 yuan per tonne, the lowest since July 30, and was last down 4.2 percent at 2,232 yuan.

Coking coal slid 3.8 percent to 1,245.50 yuan a tonne and iron ore lost 2.1 percent to 485 yuan.

Spot iron ore for delivery to China’s Qingdao port .