China steel surges as demand picks up, output curbs extended

China steel futures surged on Monday, with construction material rebar hitting a near eight-year high and hot-rolled coil climbing to an all-time peak, as demand picked up while output restrictions have been extended to reduce air pollution.

The most-actively traded October rebar contract on the Shanghai Futures Exchange jumped as much as 3.9% to 3,966 yuan ($577) a tonne, its highest since August 2011, before closing up 2.3%.

Hot-rolled coil, steel used in cars and home appliances, ended 3.7% higher at 3,846 yuan a tonne, after hitting 3,928 yuan earlier in the session, a life high based on available Refinitiv Eikon data beginning March 2014.

China’s top steel city of Tangshan has imposed a new set of output restrictions on its iron and steel firms because of persistently high industrial gas pollution levels, the local government-backed Tangshan Labour Daily reported on Monday.

Two units of steel giant Shougang, Hebei Wenfeng Iron and Steel, Tangsteel, Delong Holdings and Hebei Zongheng Steel must cut production at sintering plants, blast furnaces, converters and lime kilns by 20% until Aug. 1, the newspaper said.

Other steel companies will have to halve their production, it said.

While steel prices have steadily picked up starting June 19, steelmaking raw materials continued to pull back after their strong rallies recently, fuelling optimism that the industry’s profitability will improve.

Steel demand from China’s downstream sectors has turned “very strong”, said steel and iron ore data scientist Darren Toh of Singapore-based data analytics company Tivlon Technologies.

“Tivlon Technologies is also getting bullish on steel margins over the next 10 weeks,” he said, citing the imposition of sintering and production cuts that may crimp demand for iron ore and other steelmaking raw materials.

Steel margins have shrunk this year as the cost, particularly of iron ore, skyrocketed at a time when Chinese mills continued to ramp up output.

Iron ore has outperformed the rest of China’s ferrous complex this year with a gain of 84%, as No. 2 exporter Brazil curbed shipments in the wake of mine closures after a deadly tailings dam burst in January sparked safety concerns.

The most actively traded September iron ore contract on the Dalian Commodity Exchange ended 1.1% lower at 813.5 yuan a tonne, pulling away from a record high of 837 yuan hit on June 20, despite a steady decline in Chinese port stockpiles.

Iron ore port inventory shrank further to 116.75 million tonnes as of last week, from 118.7 million tonnes the week before SH-TOT-IRONINV, latest data from SteelHome consultancy showed. That was the lowest level since early 2017.

Shipments from Brazil may soon pick up as miner Vale SA said last week it would fully resume operations at its Brucutu mine, one of those previously shuttered for safety checks after the dam collapse.

Dalian coking coal futures slipped 0.9% to 1,376 yuan a tonne. Coke futures edged up 0.4% to 2,081.5 yuan.
Source: Reuters (Reporting by Enrico dela Cruz; Editing by Subhranshu Sahu)