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Shanghai steel extends rally to six-week high on tighter supply

Chinese steel futures jumped for a third straight session on Wednesday, touching a six-week high, as winter production curbs in the world’s top steelmaker reduced traders’ stockpiles to the lowest in years.

Steel mills across northern China were ordered to curb sintering output by up to half from this month through March. Sintering, where iron ore is processed ahead of steelmaking, causes heavy pollution.

Stocks of rebar, a construction steel product, among Chinese traders reached 3.35 million tonnes on Nov. 24, the lowest since at least 2011, according to data tracked by SteelHome consultancy. SH-TOT-RBARINV

“This was mainly because of supply shortage due to the winter production cuts that started half a month ago,” Argonaut Securities analyst Helen Lau said in a note.

With restrictions on iron ore and the low utilisation rate at blast furnaces, steel producers are securing more scrap to produce steel, said Lau.

The most-active May rebar contract on the Shanghai Futures Exchange was up 0.9 percent at 3,894 yuan ($590) a tonne by 0221 GMT. It earlier hit 3,899 yuan, its strongest level since Oct. 16.

Iron ore for May delivery on the Dalian Commodity Exchange rose 0.5 percent to 504.50 yuan per tonne.

Lau said the recent price gains in iron ore price were driven by the strength in the steel market.

“However in view of the quick decline in utilisation rates at blast furnaces, the actual demand for iron ore is declining,” she said.

Utilisation rates at Chinese steel mills’ blast furnaces dropped by 0.26 percentage points from a week ago to 72.4 percent as of Nov. 24, Morgan Stanley said in a note on Monday. Steel inventory at both traders and mills was the lowest in the past five years due to the winter cuts, the bank said.

Iron ore for delivery to China’s Qingdao port .IO62-CNO=MB rose 0.7 percent to $67.76 a tonne on Tuesday, not far below last Friday’s two-month high of $67.94, according to Metal Bulletin. ($1 = 6.6030 Chinese yuan)

Source: Reuters

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