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Shanghai steel retreats from gains, tight supply concerns remain

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Government of Tangshan said it will enforce emergency pollution reduction measures and had asked steel mills to halve their production capacity of sintering machines, shaft furnaces and lime kilns .

Beijing

SHANGHAI rebar steel futures retreated from early gains on Tuesday although worries about possible tight supply because of strengthened production restrictions across the country remained.

The most-active construction steel rebar futures closed 0.2 per cent lower at 4,337 yuan (S$866) a tonne. It hit a seven-year-peak of 4,413 yuan a tonne in the previous session.

Since Friday, concerns about stepped-up environmental measures in the top steelmaking city of Tangshan in Hebei province and in the No 2 steelmaking province of Jiangsu have driven up rebar prices by nearly 5 per cent.

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However, steel mills and industrial associations in the regions told Reuters they have not received any further notices on production curbs from the government.

"Constant market news on production curbs and expectations of reviving demand in the autumn season have led to madness in the steel market," analysts from Orient Futures said in a note.

"Many regions have already enforced output restriction requirements and further policies may not have more impact on the market, but in the short-term investors could go even crazier," they said, adding that further moves would be unsustainable.

Jiangsu Shagang Group, the country's biggest private-owned steel mill, on Tuesday raised its rebar prices by 150 yuan a tonne to 4,570 yuan a tonne for Aug 21 to 31. However, the price adjustment is lower than market expectation of 200 yuan a tonne, which indicates prices rally on steel may start to slow.

Hot-rolled coil futures on the Shanghai Futures Exchange hit a record 4,369 yuan a tonne during early trade on Tuesday. It was up 0.8 per cent to 4,282 yuan a tonne when market closed.

Average daily crude steel output at major steel companies over Aug 1 to 10 rose 1.6 per cent to 1.94 million tonnes compared with July 21 to 31, according to China's Iron & Steel Association (CISA), fuelled by near-record-high profit margins at steel mills across the country.

The government of Tangshan said on Tuesday it will enforce emergency pollution reduction measures from Aug 21 to 27 and had asked steel mills to halve their production capacity of sintering machines, shaft furnaces and lime kilns. REUTERS