Steel futures soar as output cuts meet robust demand

Prices soar: Workers make iron bars at a steel factory in Lianyungang, in China’s eastern Jiangsu province. Prices are surging after Chinese authorities and the steel sector pledged measures to reduce output. — AFP

BEIJING: Steel futures in China extended their surge as the country pushes to rein in production amid a seasonal pick up in demand.

Rebar in Shanghai is at the highest since futures began trading in 2009, while hot-rolled coil is near the highest since 2014. Prices are surging after Chinese authorities and the steel sector pledged measures to reduce output, including in the hub of Tangshan, and curb carbon emissions.

“We expect the central government will likely launch a nationwide production control plan soon, ” which could be followed by more cuts in other provinces in the second half, Citigroup Inc wrote in a note.

“Despite the market concerns of potential inflation risks, we believe the government is determined to curb steel production in order to reduce its carbon footprint.”

The surge in steel has boosted profit margins at China’s mills, encouraging producers to increase output and lifting benchmark spot iron ore prices to the highest in a decade. It’s also spurred a surge in crude steel output, with volumes nearing a record in March, despite the pollution crackdown.

“Steel producers appear to be making the most of the high margins, boosting output ahead of possible further restrictions, ” Australia & New Zealand Banking Group Ltd analysts including Daniel Hynes wrote in a note. “This is creating strong demand for steel-making raw materials. Combined with ongoing supply side issues, iron ore prices look well supported in the short term.”

Still, if Chinese stimulus measures end later this year, steel output will eventually weaken, the bank said, and increasing environmental curbs on the sector could have a sizeable impact on iron ore prices.

In the iron ore market, exports from Australia declined for a third week, according to initial Global Ports data compiled by Bloomberg. BHP Group and Rio Tinto Group said this week that quarterly shipments dropped on weather-related disruptions, while Brazil’s Vale SA churned out less ore than expected. — Bloomberg

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