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China steel extends rally ahead of winter cuts

2017-08-08 08:55:32

Reuters

  Authorities order mills to halve output in key areas to combat smog
 
  Chinese rebar steel futures surged as much as 7 percent to their highest level in more than four years on Monday.
 
  This comes as buyers increased their purchases on expectations of reduced supply for the winter ahead due to capacity curbs in the country.
 
  China earlier this year ordered steel and aluminum producers in 28 cities to slash output during winter to fight smog. The key steel producing area of Tangshan and other parts of North China's Hebei Province have said they will implement the order.
 
  The government then called on steel producers to halve output in Hebei, North China's Shanxi Province, East China's Shandong Province, and Central China's Henan Province as well as in Beijing and Tianjin during the peak winter heating months, which are from late November to early March. The size of the output cuts will depend on how much each region has reduced its emissions.
 
  "In anticipation of less supply of steel, there should be some traders and end-users bringing forward their purchase plan," said Richard Lu, analyst at CRU consultancy in Beijing.
 
  "Due to expectations of reduced supply, prices may rise further in coming months, so it's better to buy now," Lu said.
 
  The most-active rebar contract on the Shanghai Futures Exchange climbed by its 7 percent exchange-set limit to a session peak of 4,013 yuan ($597) a ton, its loftiest since April 2013.
 
  The strength in the steel market spilled over to raw material iron ore, with the most-traded iron ore on the Dalian Commodity Exchange rising as much as 7.3 percent to 587.50 yuan per ton, the highest since March 21.
 
  Despite the spike, traders believe there remains plenty of iron ore in China. "There's no rush among buyers to procure iron ore since there are a lot of cargoes available, both [fresh] seaborne cargoes and those [stocked] at ports," said a Shanghai-based trader.
 
  Stockpiles of imported iron ore at China's ports stood at 139.15 million tons last Friday, according to data tracked by Shanghai-based industry news site SteelHome. The level was not far below the record 141.45 million tons reached in June.