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Shanghai steel hits 1-month low on expectations of more supply

Shanghai rebar steel futures dropped to one-month lows on Wednesday on expectations of increased supply in top market China over winter and through next year.

China ditched blanket production curbs for winter as part of its anti-smog campaign, instead allowing cities and provinces to set their own output restrictions.

A copy of this month’s notice from the local government of Tangshan, China’s top steelmaking city, showed the planned average cut at mills over autumn and winter would be 31.6 percent.

That would be within analysts’ earlier estimate of 30 percent-35 percent based on an earlier notice from Tangshan government in October. The previous winter’s cuts averaged 42 percent, analysts said.

The most-active January rebar on the Shanghai Futures Exchange fell as far as 3,914 yuan ($565) a tonne, its weakest since Oct. 8. It closed down 1.7 percent at 3,930 yuan.

The final production cuts at mills in Tangshan could be lower than the city’s target, said Helen Lau, analyst at Argonaut Securities.

“If the pollution is not as bad as last year they may allow for some production to continue,” she said.

Ahead of the winter curbs, China’s average daily steel output hit a record high of 2.7 million tonnes in September.

Supply is also expected to increase next year when more electric arc furnaces (EAFs) are likely to be operating, said a Shanghai-based trader, in line with China’s tighter environmental rules. EAFs use less polluting scrap steel unlike blast furnaces which are fed by iron ore and coking coal.

Prices of steelmaking raw materials also fell. Coking coal on the Dalian Commodity Exchange dropped 1.6 percent to 1,361 yuan a tonne, and coke slipped 0.6 percent to 2,395.50 yuan.

Iron ore dropped 0.6 percent to 511 yuan per tonne.

Global miner BHP Billiton expects some interruption to its Australian iron ore exports after a nearly 3-km-long train loaded with the commodity was forcibly derailed this week after running away enroute to a key shipping hub.

BHP said it will rely on its stockpiles at Port Hedland to maintain operations at the export hub, although traders said they have not seen any disruptions to shipments of BHP’s medium-grade iron ore yet to China.

“I don’t think any disruption would matter as demand is now focused on low-grade iron ore,” said an iron ore trader in Singapore.

“The less stringent cuts in steel production for the fourth quarter is generating expectations for higher steel production in the coming months.”

Source: Reuters

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