OUTLOOK: Looming production curbs in China set to boost long steel prices
The possibility of new restrictions in major steelmaking regions in China will likely give long steel prices in the country - which have been trending upward since hitting a price floor a week ago - a further boost in July.
Industry sources are increasingly concerned over whether two other major rebar production regions - the provinces of Jiangsu and Shandong - will introduce output curbs to improve air quality come July.
The country’s steelmaking hub of Tangshan in Hebei province has already begun implementing restrictions that are effective until July 31.
A drop in supply from all three regions will have a major effect on prices, since they accounted for more than 45% of the 404.88 million tonnes of crude steel produced in China in the first five months of 2019.
“Once Jiangsu and Shandong start to implement restrictions, no production increase in any other part of China will be able to make up for the supply loss,” a trader in eastern China said.
Local authorities in Tangshan instructed all but six mills in the city to cut their production by at least 50% until the end of July to improve air quality. The six mills, which are located along the coast, only need to lower their output by 20%, according to the notice issued last weekend.
Many steel mills in Tangshan are adhering closely to these restrictions, sources said.
For instance, a long steel producer with 5.5 million tonnes per year of crude steel capacity is planning to stop three of its five blast furnace as well as three of its four converters over different periods from now until July 31, an industry analyst told Fastmarkets MB.
While Tangshan’s production cuts will likely have a bigger effect on China’s flat steel prices, they are expected to also provide support to the long steel market. The anticipation of further restrictions elsewhere is resulting in market participants becoming more bullish about prices.
Rebar prices in the most-active eastern Chinese region were at 3,960-4,000 yuan ($577-582) per tonne on Friday June 28, up 130 yuan per tonne from 3,830-3,870 yuan per tonne a week earlier, before Tangshan announced its restrictions.
This year’s nationwide environmental inspections are also about to start soon, according to China’s state-owned news agency Xinhua.
“A new round of environmental inspections will also support steel prices just like last year, when the first round caused long steel prices to climb from July onward,” a trader in eastern China said.
Market sources in China expect the country’s long steel exports to remain uncompetitive in light of these new development.
Buyers in Southeast Asia have shown a keen interest on Turkish, Qatari and Indian rebar in recent weeks due to their lower prices.
Producers in Southeast Asia are also starting to price out their Chinese counterparts.
This week, rebar from Malaysia was heard to have been sold at $510 per tonne cfr Myanmar.
“Chinese wire rod exports may see some demand from overseas markets, but it is also facing strong competition from suppliers in other regions,” a source at a mill in northern China said.
Chinese steel mills raised their wire rod offers by $10 yuan per tonne to $520 per tonne fob this week in comparison with last week amid higher domestic prices, but no deals were heard.
Buyers in the Philippines - a major destination for the product - have been able to secure supply from a major Malaysian steelmaker at $515 per tonne cfr.
Paul Lim in Singapore contributed to this report.