Off The Wire
China rebar hits 3-1/2-yr top as mill closures spur supply worries
Wednesday July 05, 2017 12:58 AM
Kitco NewsShare this article:
* Shanghai rebar rises for an eighth straight session
* China shut 120 mln tonnes in low-grade steel capacity
* These producers mostly used steel scrap as raw material
* Iron ore futures drop for second day
By Muyu Xu and Manolo Serapio Jr
BEIJING/MANILA, July 5 (Reuters) - Chinese rebar futures climbed to their highest in nearly three-and-a-half years on Wednesday on rising concern over tighter supply after Beijing shut some low-quality steel plants to cut pollution and a production capacity glut
China, the world's largest steel producer, closed more than 600 steel mills producing low-grade construction steel during the first half of the year, shuttering about 120 million tonnes of capacity, the state-owned China Economic Daily reported on Tuesday. Analysts estimate that these mills that use highly polluting induction furnaces made about 50 million tonnes of steel rebar, last year, about a quarter of China's total rebar output. Rebar is mainly used in construction, particularly for reinforcing concrete. "Due to the elimination of low-grade steel, profit margins at mills remain at a high level, enticing them to increase output," analysts at Orient Futures wrote in a note.
"However, the newly added supply is still insufficient to fill the gap left by low-grade steel in the short term."
The most-active rebar on the Shanghai Futures Exchange rose to as high as 3,474 yuan ($511) a tonne, its strongest since January 2014. It was up 1.3 percent at 3,436 yuan by the midday break.
The contract has risen for eight straight sessions and is up 29 percent this year.
Spot rebar prices have also been rising, up 0.4 percent to 3,826 yuan a tonne on Wednesday, with 17 out of 25 Chinese provinces increasing their offer prices, according to data on the website of consultants Mysteel. Stocks of rebar held by Chinese traders stood at 3.73 million tonnes as of June 30, just above a six-month low hit in early June, data compiled by SteelHome showed.
The low-grade steel producers that China ordered closed used steel scrap as raw material, not iron ore.
The most-traded traded iron ore contract on the Dalian Commodity Exchange fell 1.2 percent to 472.50 yuan a tonne, retreating for a second day.
Iron ore stockpiles at China's ports stood at 140.3 million tonnes last week, not far below a record high of 141.45 million tonnes reached the previous week. Other steelmaking raw materials were firmer, with coking coal futures up 0.8 percent at 1,133 yuan per tonne and coke 0.5 percent higher at 1,784 yuan. ($1 = 6.7950 Chinese yuan)
(Reporting by Muyu Xu in Beijing and Manolo Serapio Jr. in Manila; Editing by Christian Schmollinger)