Steel in China Climbs to 10-Week High as Tangshan Curbs Output

  • Higher steel prices boost margins, support iron ore: Marex
  • Raw material price still expected to fall in second half

Steel prices in Shanghai rallied after a local government in China’s top producing province ordered mills to restrict output at a time when inventories have shrunk to at least a six-year low.

Steel reinforcement-bar, a benchmark product in construction , for October delivery climbed as much as 5.5 percent to 2,563 yuan ($383) a metric ton on the Shanghai Futures Exchange, and closed at 2,558 yuan, the highest since April 29. The surge helped to lift iron ore, with futures in Dalian rising 5.6 percent, and the Metal Bulletin Ltd. price rising to the highest since May.

Steel and iron ore have advanced in 2016 after policy makers in China bolstered growth and the property sector rebounded, aiding demand. As mills have increased supply in response to the spurt in prices, stockpiles of rebar have dwindled. The steel-making hub of Tangshan city in Hebei province plans to restrict output through July to ensure clean air for memorial activity marking the anniversary of the Great Tangshan earthquake of July 28, 1976.

While the output restrictions have provided an impetus for prices to rise, “the cuts may have limited impact as they’re occurring at a seasonally weak period for demand,” Wang Ying, an analyst at Everbright Futures Co., wrote in a note. “The low steel inventory is providing a good safety cushion for steel prices.”

‘Overreaction’

Stockpiles of rebar have declined to the lowest since at least March 2010, according to Shanghai Steelhome Information Technology Co. The holdings fell 5.2 percent to 3.47 million tons last week, the seventh drop in eight weeks. Prices have risen every month this year apart from in May.

As holdings of rebar have been falling, more iron ore is being shipped. Data on Monday showed ore shipments from the world’s biggest bulk-export terminal in Australia surged to a record in June, buttressing a flurry of predictions that prices may decline.

The higher steel prices have boosted mills’ profit margins, helping to support iron ore, Marex Spectron analysts including Hui Heng Tan said in a note received on Tuesday. Still, “iron ore supply, which is anticipated to increase in the coming months, could create downward pressure on iron ore prices.”

Iron ore will probably moderate over the rest of 2016 as the market remains well-supplied, Australia’s Department of Industry, Innovation and Science said last week. That view is similar to bearish forecasts from Goldman Sachs Group Inc. and Clarksons Platou Securities Inc., who’ve said that iron ore will probably decline this half.

Ore with 62 percent content delivered to Qingdao advanced 6.7 percent to $59.38 a dry ton on Tuesday, the highest price since May 5, according to Metal Bulletin. The raw material surged to $70.46 in April, the highest since January 2015. It bottomed at $38.30 in December.

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