Chinese rebar steel futures climbed to their strongest in more than four years on Thursday, supported by firm demand and tighter supply following Beijing's clampdown on low-grade steel production. The sustained strength in the steel market could keep profit margins at Chinese producers high through the end of the year, traders said, adding it should spur appetite for raw material iron ore.
The most-active rebar on the Shanghai Futures Exchange rose as much as 3,791 yuan ($564) a tonne, its highest since September 2013. The construction steel product closed up 1.5 percent at 3,776 yuan. "Almost all mills in China enjoyed good profits in the past month and people are expecting profit margins to continue to be strong towards the fourth quarter," said a Shanghai-based trader.
Chinese construction steel producers are seeing their best profits in years, powered by the government's infrastructure push as well as a crackdown on producers of low-quality steel or those that used induction furnaces. China had shut production of all highly polluting low-end steel products at the end of June and has said it will send inspection teams this month to make sure they won't reopen.
The closures have helped tighten rebar supply in China. Analysts have estimated induction furnaces produced about 50 million tonnes of rebar last year - about a quarter of China's total rebar output. "The market has become tighter and the feedback from mills is that they have plenty of orders and they have no problem selling steel products," the Shanghai trader said.
The price of raw material iron ore also rose, with the most-traded iron ore for January delivery on the Dalian Commodity Exchange up 0.5 percent at 543.50 yuan a tonne. It touched 582 yuan on Tuesday, its highest since March 24. Iron ore for delivery to China's Qingdao port fell 1.7 percent to $72.30 a tonne on Wednesday, retreating for a second straight day, according to Metal Bulletin.