China's steel rises but iron ore retreats

Benchmark prices of construction material rebar and hot-rolled coil in China rallied for a fifth session on Tuesday, underpinned by output restrictions in the world's top steel producer as it seeks to curb pollution. A pick-up in steel demand gave prices a further boost, while mills also sought to pass on the increase in costs of raw materials to buyers, traders said. The most-actively traded October rebar contract on the Shanghai Futures Exchange closed 2.2% higher at 3,994 yuan ($580.53) a tonne. It spiked to as high as 3,999 yuan shortly before trading ended, its highest since August 2011.
Hot-rolled coil, which are used as metal sheets in cars and home appliances, closed 1.7% higher at 3,913 yuan a tonne. It hit a record-high 3,935 yuan earlier in the session. Persistently high industrial gas pollution levels in China's top steelmaking city of Tangshan have prompted local authorities to impose a new set of output curbs on producers, some of which will have to halve production in the next few weeks.
The restrictions, which will be in place until Aug. 1, come at a time when steel inventories in China are significantly lower than the highs seen between February and March. Their removal, however, will depend on air quality conditions at the time, according to the local government-backed Tangshan Labour Daily. "Some customers and traders are saying the (steel) inventory is a little bit low, so there's an additional demand (to replenish stocks) that pushes prices even higher," said a Shanghai-based steel trader.
"At the same time, some steel mills are also trying to lift their prices up because of the high cost of raw materials, especially iron ore," the trader said.
Expectations of stronger steel demand in China are rising amid Beijing's efforts to support the domestic economy hit by the trade dispute with the United States, said ANZ Research in its quarterly report released on Tuesday.
"This should see China's steel demand growth hold up well," ANZ said, as it revised growth forecast for the country's steel output in 2019 to 4.5%, reaching 970 million tonnes, from 3.3% at the beginning of the year.
Crude steel output in China in May reached a record-high 89.1 million tonnes, up 10.0% from May 2018 despite dwindling profit margins as a jump in prices of raw materials.