Chinese provinces Hebei and Shandong have ordered the mills to reduce their steel output by up to 50% in the run up to China's National Day holidays.
In response, the most active rebar and hot-rolled coil contract on the Shanghai Futures Exchange rose by 3.6% and 3.2%, respectively, on Monday on expectations of tighter steel supply.
Five mills in Shandong were ordered Monday to suspend 15%, 40%, 50%, 50% and 100% of steel capacity, respectively, over September 23 to October 3 to guarantee clear skies for the National Day celebration on October 1. This will result in lost steel output of around 29,000 mt/d, S&P Global Platts estimates.
In Handan city in Hebei province, local sources said formal orders were expected to be issued in the next couple of days, and local mills were preparing to suspend most of their ironmaking capacity until October 3. Mills in the city have had their recent output cut by an average of 54%, reducing pig iron production by 39,000 mt/d.
The output cut plan in Hebei's Tangshan is more ambiguous. Its first order, issued on September 21, exempted all local blast furnaces from output cuts, with only sintering plants subject to 50% cuts over September 22-27. It then revoked the order on September 23, and verbally notified mills to prepare for output cuts at both blast furnaces and sintering plants from September 24 until mid-March 2020, according to a local mill source.
Tangshan previously ordered 30%-50% blast furnace output cuts at most local mills through September into early October, losing around 60,000-70,000 mt/d of pig iron production. But these orders are have been only loosely implemented, sources said.
China's Ministry of Ecology and Environment issued a draft for 2019-2020 winter emissions control measures last week, which ordered differentiated output cuts during "heavily polluted weather conditions."
However, the strengthened output cuts in Shandong and Hebei have again convinced the steel market that environmental restrictions on steel production will continue, which is likely to ease the steel oversupply in winter.