Steel market fuelled by rumours about Tangshan production cut

The recent upward trend in China’s domestic steel market could continue in the next few days on possible production cuts in the steelmaking hub of Tangshan in Hebei province, participants told Steel First.

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Market rumours suggest that the Tangshan government has urged local mills to cut iron output by 28 million tonnes per year and steel output by 32 million tonnes per year, which accounts for around one third of the northern region’s total iron and steel production.

A source with a major Tangshan mill denied the rumor when contacted by Steel First. “I’ve heard about that, but we have not been informed about any production cut yet, and our mill is still operating as normal,” he said.

Reductions in output have long been suggested by local government, although “much has been said but little done about it”, he added. “I think mills are unlikely to cut production at the moment as the steel market is firming up and they can make money,” he said.

The deputy provincial governor of Hebei province visited Tangshan on Tuesday August to investigate the local steel industry, stressing the importance of solving the steel overcapacity problem in the province, according to Xinhua News Agency.

A source with a privately-owned mill in Tangshan told Steel First that local government may want to curb production or eliminate outdated capacity by putting restrictions on power consumption, although nothing has been confirmed at present.

However, this has nevertheless been a catalyst for some mills in the region to hike their prices, according to traders. “Offer prices for sections have kept rising recent days due to relatively tight supply, as some mills have suspended selling on speculation,” a trader in east China’s Jiangsu province said. Mills could continue to take this advantage to push prices up, he predicted.

Meanwhile, a Shanghai-based analyst said that massive production cut is not likely in the short term, although there is possibility for power restriction. “But this could have little impact on large mills, as they can generate electricity on their own,” he said.

Small local mills could be affected however, resulting in higher prices for billet and other long products, as small privately-owned mills mainly produce those products, he said.

Tangshan billet prices have seen an accumulated increase of 100 yuan ($16) per tonne since last Friday, due to relatively tight availability on the market.

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