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Dalian iron ore sees worst week in 17 months on China steel curbs

Dalian iron ore was set on Friday for its steepest weekly drop in 17 months, as China’s intensified drive to lower steel output prompts mills to start cutting production to avoid sanctions.

The steelmaking raw material’s most-active September contract on China’s Dalian Commodity Exchange was down 2% at 1,124 yuan ($173.60) a tonne by 0700 GMT, extending losses into a fifth session.

It has fallen roughly 10% from last week, its biggest weekly drop since February last year, and is now off 17% from a record peak touched in May.

Iron ore’s most-traded August contract on the Singapore Exchange dipped 0.2% to $197.25 a tonne.

Top steel producer China has stepped up efforts to reduce output of the construction and manufacturing material in line with its carbon emission reduction goal.

Authorities have asked steel mills to ensure their output this year will be no more than 2020 volumes, after first-half production rose roughly 12% from the year-earlier period.

In China’s top steelmaking city of Tangshan, “authorities have vowed to punish violations of production restrictions”, ANZ commodity strategists said in a note.

“Some independent rolled steel firms halted production in early July, with more closures expected in coming months,” they said.

Benchmark 62%-grade iron ore’s spot price in China hit a six-week low of $209.50 a tonne on Thursday, SteelHome consultancy data showed.

Such concerns over steel output restrictions, however, had the opposite effect on steel prices, as fears grew that supply might tighten.

Construction steel rebar on the Shanghai Futures Exchange SRBcv1 advanced 2.2%, while hot-rolled coil climbed 1.7%, both on track for their fourth consecutive weekly gains.

Shanghai stainless steel rose as much as 4.8% record high of 19,400 yuan a tonne on tight supply worries.

Tight supply concerns also drove Dalian coking coal DJMcv1 and coke DCJcv1 higher, up 2% and 2.1%, respectively.
Source: Reuters (Reporting by Enrico Dela Cruz in Manila; Editing by Subhranshu Sahu)

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