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Steel rebounds as output curbs deepen, iron ore dips

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 most-active rebar on the Shanghai Futures Exchange jumped 1.6 percent to close at 3,912 yuan ($591.26) a tonne.

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 steel mills and coke plants in top steelmaking province Hebei, analysts say.

The China Iron & Steel Association (CISA) said in a report that the production cuts at mills will be ensured by monitoring their electricity use and that the curbs had widened to cover other areas including Shanxi and Shandong provinces.

“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 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, coking coal jumped 2.7 percent to 1,277.5 yuan per tonne and coke, produced from coking coal, surged 4.9 percent to 2,104 yuan.

The most-traded iron ore contract swung to losses, down 0.5 percent to end at 495.5 yuan a tonne.

CISA expects iron ore imports will slightly rise in December from November – which was one of the highest on record – as iron ore miners aim to meet their full-year shipment target while domestic miners curb production due to the environmental crackdown.

“Chinese iron ore port inventories will continue rising due to the ongoing steel output cut and slower appetite from steel mills which have finished restocking,” it said.

Iron ore for delivery to China’s Qingdao port soared 5.6 percent to $69.35 a tonne on Friday, according to Metal Bulletin.

Source: Reuters

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