Shanghai rebar steel futures jumped more than 1 percent on Monday after 10 cities in China’s top steel-producing Hebei province issued second-level smog alerts, prompting industrial plants to cut output.
The gains in steel prices also came alongside the rally in Chinese stocks as Beijing pledged support for equity markets and as China prepares to overhaul its income tax law for individuals.
The “orange” pollution alerts in 10 cities, including top steel producer Tangshan, began on Friday and will last through Monday. Tangshan has ordered steel mills in the city to reduce output of their sintering machine and shaft furnaces by half.
The most-active January rebar on the Shanghai Futures Exchange closed 1.5 percent firmer at 4,154 yuan ($599) a tonne. Hot rolled coil rose 0.9 percent to 3,901 yuan.
Apart from the smog alerts, Tangshan rolled out anti-smog production cuts for winter, which analysts say appear less restrictive than last year and could keep output high.
Based on a list of restrictions detailed in a local government notice issued on Thursday, the average production cut at mills in the city would come in at 30 percent-35 percent, lower than last year’s 42 percent, analysts said.
“Looking ahead, relaxed winter production controls and incentives to produce more amid high steel margins will eventually lead to oversupply risks and downward pressure on steel prices and steel margins,” Argonaut Securities analyst Helen Lau said in a note.
Xuzhou, a city in China’s No. 2 steelmaking province Jiangsu announced plans to cut output of steel, coke and other raw materials in winter, but did not detail by how much.
January iron ore on the Dalian Commodity Exchange climbed 1.7 percent to 524.50 yuan a tonne. Coking coal slipped 0.9 percent to 1,361.50 yuan a tonne, and coke slid 1.2 percent to 2,359 yuan.
Yaang Pipe Industry Co., Limited (www.yaang.com)