China steel and iron ore futures soar

China steel and iron ore futures soar on new pollution curbs Biggest steel-producing region to extend winter production control China’s anti-smog measures are forcing steel plants to cut output, pushing production into higher quality steel requiring higher grade iron ore © Reuters Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window) Save Save to myFT Gabriel Wildau in Shanghai 2 HOURS AGO 0 Steel and iron ore prices rose to year-to-date highs on Monday after China’s top steel-producing region announced it would extend winter production curbs intended to cut air pollution. Tangshan steel mills were forced to cut production by up to 50 per cent beginning late last year as part of a campaign against air pollution. Production limits are also aimed at squeezing out excess capacity in China’s steel and coal sectors, which has led to poor profitability and rising debt at so-called “zombie enterprises”. The local government in Tangshan, China’s biggest steelmaking city, said on Friday that it would maintain production limits scheduled to expire when the winter heating season ends in March. An extension of the cuts would reduce steel supplies just as construction demand picks up amid warmer weather. Singapore-traded futures for March delivery of 62 per cent iron-ore hit its highest level since April on Monday, rising by as much as 1.5 per cent to $79.15 per tonne. Shanghai-traded steel reinforcement bar for May delivery was up by as much as 3.8 per cent to Rmb4,047 ($641) per tonne, the highest since early December. Steel production curbs would normally cause iron ore prices to fall, but analysts said steel mills would concentrate production on higher value-added steel products that carry higher profit margins. That boosted demand for higher quality ores used as inputs. Share this graphic “The profitability situation for steel mills is pretty good. Most of them have strong demand for high-quality ores,” said Liu Jie, coal and steel analyst at Citic Futures in Beijing. Analysts said that restocking by steel mills following the recent lunar new year holiday also contributed to Monday’s rally. Chinese state planners moved forcefully last year to shutter inefficient mines and mills, spurring a rally in commodity prices following years of deflation. The forcefulness of the campaign against pollution and overcapacity surprised markets following years in which policy rhetoric was not matched by action. The Communist party’s fearsome anti-graft agency has thrown its weight behind the effort, including punishing non-compliant local officials. A commentary in the official Xinhua news agency last month declared that the Communist party would have “zero tolerance for corruption by inaction”. A Financial Times poll of analysts last month found that most expect steel production to slow sharply this year. Tangshan said that the production curbs, scheduled to end on March 14, will now run until November 14, idling 9.9m tonnes of capacity.