Chinese steel rebounds as output curbs deepen, raw materials surge

[MANILA] Chinese steel futures bounced back on Monday after a three-day drop as output cuts in the world's top producer deepened in line with China's anti-pollution campaign, tightening supply.

The surge in steel pushed up prices of raw materials even as their use was dented by the production cuts, with iron ore futures jumping nearly three per cent and coke climbing more than five per cent.

China has ordered industrial plants across 28 cities to curb output during winter as part of its efforts to reduce smog. At the weekend, there were further production curbs in the top steelmaking province of Hebei, analysts say.

"The output cuts in Hebei deepened over the weekend when the air pollution worsened, while commercial inventories of steel products remained at low levels and demand remained firm," said Bai Jing, an analyst with Galaxy Futures in Beijing. "Steel prices are expected to stay strong in the near term."

The most-active rebar on the Shanghai Futures Exchange had jumped 1.7 per cent to 3,916 yuan (S$800.51) a tonne by 0240 GMT.

The war on smog has pushed spot Chinese steel prices to a nine-year high last week amid tighter supplies and unexpectedly healthy demand, especially in east and southern China.

"The construction activity in east and south China have been quite robust and we heard some projects are running until the end of the year. They want to make as much progress as possible before end of the year," said Richard Lu, analyst at CRU in Beijing.

Chinese traders' stocks of rebar, a construction steel product, stood at 3.03 million tonnes as of Dec 1, the lowest since at least 2011, according to data tracked by SteelHome consultancy.

On the Dalian Commodity Exchange, the most-traded iron ore contract rose 2.6 percent to 511 yuan a tonne. Coking coal jumped 3.6 per cent to 1,289 yuan per tonne and coke, which is produced from coking coal, surged 5.4 per cent to 2,113 yuan.

Iron ore for delivery to China's Qingdao port IO62-CNO=MB soared 5.6 per cent to US$69.35 a tonne on Friday, according to Metal Bulletin.

REUTERS