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[SHANGHAI] Chinese steel mills are picking up production lured by a rally in prices, a move that could worsen a supply glut, the China Metallurgical News reported on Thursday, citing mill delegates at a China Iron & Steel Association meeting this week.
Shanghai steel rebar future prices rose 19 per cent since the beginning of this year, a move seen by delegates as a recovery after a slump last year, rather than reflecting a substantial improvement in fundamentals, said the report.
Rebar futures tumbled 36 per cent last year, with demand hit hard by a slowing China economy that expanded an annual 6.9 per cent in 2015, its slowest pace in 25 years.
The current spike in steel prices has driven spot iron ore up by 22 per cent so far this year.
Beijing aims to cut excess industrial capacity, particularly in the coal and steel sectors, and will cut crude steel capacity by 100 million to 150 million tonnes within the next five years.
The bloated steel sector is facing massive potential layoffs, higher environmental costs and shrinking access to loans, and the recent recovery in prices could be short-lived.
Association delegates were also concerned that steel exports by the world's top producer are likely to fall further as a result of increasing anti-dumping investigations and waning demand from European countries, a move that could weigh on prices, said the report.
China's steel exports rose 4 per cent to 8.11 million tonnes in February from a year ago, but tumbled 16.7 per cent from January. Exports in January-February dropped 1.3 per cent to 17.85 million tonnes.
The European Commission announced plans on Wednesday to speed up trade defence cases against cheap imports from China and urged EU member states to stop blocking measures that could set higher duties against dumped and subsidised products.