Local authorities intend to extend production limits imposed on heavy industries beyond the winter heating season - which concludes at the end of March - to the April-September period to preserve air quality, according to reports by local information providers quoting a draft plan.
Market participants are not expecting this to have any significant influence on steel prices, at least not for the near term.
“This news will not boost steel prices ahead of the Chinese New Year because of the weak seasonal demand [before the holiday],” a source at a mill in Tangshan, in Hebei province, said.
“We have to consider more factors for a longer-term outlook, such as supply and demand in the country, futures prices and market participants’ sentiment. Tangshan’s production cuts will not be the only driver of market prices,” the source said.
Major steel products prices have been relatively steady in recent weeks amid inactivity.
Hot-rolled coil prices in the most-active market of eastern China were at 3,760-3,770 yuan ($554-555) per tonne on Friday January 25, up 110 yuan per tonne from 3,650-3,660 yuan per tonne on January 2.
Rebar prices in the same region were at 3,710-3,750 yuan per tonne on the same day, widening upward by just 10 yuan per tonne compared with 3,700-3,750 yuan per tonne at the start of the year.
One industry analyst based in Shanghai is also not expecting the draft plan to have any major effect on prices.
“The new plan hasn't been decided yet. Even if the plan is implemented, its impact on steel output will depend on whether mills adhere to the restrictions strictly. It is hard to give a firm estimate of output that will be cut in the April-September period,” he said.
Steel mills in Tangshan will come under the restrictions depending on which district they are in, according to the draft plan.
Steelmakers in the districts of Fengrun, Zunhua, Qianxi, Yutian, and Hangu, as well as the Lutai Economic Development Zone and High-tech Industry Development Zone, will have production curtailed in the months of April, August and September.
Meanwhile, mills in the districts of Lunan, Lubei, Kaiping, Guye, Fengnan, Qianan, Luanzhou, Luannan, Laoting and Caofeidian, as well as the Haigang Development Zone will be required to lower their blast furnaces’ operating rates from May until July.
The rates of reduction will be the same as those being implemented during the current winter heating season.
“If the restrictions are carried out strictly, mills might increase their consumption of high-grade iron ore and ferrous scrap to optimize their steel output,” another industry analyst based in Tangshan said.
Fastmarkets’ MB 65% Fe Iron Ore Index was at $89.10 per tonne cfr China on Friday, compared with $86.60 per tonne cfr on January 2.
Domestic heavy scrap prices in China were assessed at 2,650-2,780 yuan per tonne on the same day, up 50-80 yuan per tonne from 2,570-2,730 yuan per tonne at the start of the year.
July Zhang in Shanghai contributed to this report.
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