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China rebar rises to highest in 3-1/2 years on supply tightness concerns
Reuters Reuters
Monday July 10, 2017 11:59 PM
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* Profits on rebar production rise to 1,086 yuan a tonne
* New steel capacity comes out slower than expected
* Iron ore futures rose for third day
BEIJING, July 11 (Reuters) - China's steel rebar futures rose to their highest in three-and-a-half years on Tuesday because of increasing concerns of tight supply which is pushing profits at mills higher.
China has eliminated about 120 million tonnes of low-quality steel capacity in the first six months of this year in order to reduce emissions from the plant's furnaces. The government plans to send inspection teams to check the results of the crackdown on the high-polluting low-end steel plants. Analysts estimated that 20 million tonnes of steel capacity may be installed this year cover the shortfall, with over 60 electric arc furnaces starting up between August and October. "Steel market remains at a tight balance. Some capacity is expected to be released in summer, but there is no sign showing they will hit the market soon," said Wang Yilin, analyst at Sinosteel Futures.
The most-active rebar contracts on the Shanghai Futures Exchange rose to as high as 3,543 yuan ($520.72) a tonne, its highest since Jan. 3, 2014. It was up 2.8 percent at 3,536 yuan by mid day, its second day of gains.
Total open interest in rebar futures rose by 141,000 lots to 5.62 million contracts, just below the record of 5.63 million tonnes on July 4, equivalent to 56.2 million tonnes.
Stocks of rebar held by Chinese traders increased 790,000 tonnes to 3.74 million tonnes by Friday, just above a six-month low hit in early June, data from SteelHome consultants showed.
"As long as stocks are not piling up, prices can still rise higher," said Wang.
Spot rebar prices have also been rising, up 0.4 percent to 3,812.20 yuan a tonne on Monday, according to data on the website of Mysteel.
However, higher profit margins at steel mills may eventually mean lower prices as companies try to cash in the rising rebar prices.
Rebar margins stood at 1,086 yuan a tonnes for the week ending July 7, data compiled by consultants Mysteel showed on its website. That is up from 845 yuan for the week of June 9.
Hesteel Co Ltd , the listed subsidiary of China's second largest steel producer HBIS Group, said it expects net profit in first half of this year to more than triple to as much as 1.27 billion yuan ($186.64 million). The rising steel prices pulled raw material iron ore higher as well. The most-traded iron ore future on the Dalian Commodity Exchange climbed 1.8 percent to 488.5 yuan a tonne.
Iron ore for immediate delivery to China rose to $64.05 a tonne on Monday, according to data from Metal Bulletin .
Stockpiles of imported iron ore at ports dropped to 139.3 million tonnes as of Monday, just below the record level of 141.5 million tonnes on June 23. ($1 = 6.8041 Chinese yuan renminbi)
(Reporting by Muyu Xu and Beijing Newsroom)