SINGAPORE, Nov 26: Shanghai steel rebar futures rose to their highest level in almost two weeks on Tuesday following the closure of old steel plants in China’s top producing province, Hebei, as the authorities move to curb pollution and tackle overcapacity.
The Hebei government shut down 10 blast furnaces and 16 revolving furnaces over the weekend in eight steel mills, cutting the province’s steel- and iron-making capacity by more than 11 million tonnes, according to state news agency Xinhua.
While that represents just a fraction of Hebei’s total steel capacity of 286 million tonnes, UOB-Kay Hian Securities analyst Helen Lau said the move was a ‘significant beginning in China’s capacity closure campaign’.
‘I think we will see this campaign intensify between 2015 and 2017 and by then we might see a marked improvement in the steel supply and demand balance,’ she said.
The most-traded rebar contract for May delivery on the Shanghai Futures Exchange touched 3,657 yuan ($600) a tonne, its highest since Nov. 13, and was up 0.7 percent at 3,654 yuan at 0237 GMT.
The Hebei government said in September it planned to cut its steel production capacity by 60 million tonnes by 2017.
China has the capacity to produce around 1 billion tonnes of crude steel a year, almost 300 million tonnes more than its output in 2012, according to estimates by the China Iron and Steel Association.
That overcapacity has weighed on steel prices and mills’ margins, and addressing it has become one of the main reforms to be pursued by China’s new leadership.
However, some traders were doubtful about the longer-term impact of the closures.
‘The question mark is how much new capacity will be built by these steel mills? In the past, bigger furnaces were built when small ones were shut,’ said a trader in Shanghai.
Gains in the rebar price helped iron ore, with the most active contract on the Dalian Commodity Exchange rising almost 1 percent to 940 yuan per tonne.
In the spot market, iron ore prices were steady, with traders seen offering discounts for material stockpiled at Chinese ports amid slow sales.
Benchmark 62 percent grade iron ore <.IO62-CNI=SI> was unchanged at $136.50 a tonne on Monday, according to data provider Steel Index.
‘After a week of stagnant sales, sellers were reportedly willing to cut prices by around 5 yuan per tonne for those willing to buy,’ Steel Index said about imported iron ore at ports.
Iron ore inventory at major Chinese ports rose 1.5 million tonnes to 85.5 million tonnes last week, according to Chinese consultancy Mysteel.
(agencies)
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