CM – Steel futures rise as production cuts meet robust demand


Friday 23 April 2021

Prices are rising: Workers produce iron bars in a steel factory in Lianyungang in the eastern Chinese province of Jiangsu. Prices are rising after the Chinese authorities and the steel sector pledged measures to reduce production. – AFP

BEIJING: Steel futures in China have expanded as the country pushes to curb production amid a seasonal pickup in demand.

Reinforcement in Shanghai is the highest since trading began with futures in 2009, while hot-rolled coils are near the highest since 2014. Prices are rising after the Chinese authorities and the steel sector pledged measures to reduce production, including in the center of Tangshan and curb CO2 emissions.

« We assume that the central government will soon adopt a nationwide production control plan « Which Citigroup Inc may write in a note that could be followed by further cuts in other provinces in the second half of the year.

 » Despite market concerns about potential inflation risks, we believe the government is determined to curb steel production to reduce their carbon footprint. « 

The rise in steel has increased profit margins in China’s plants, encouraged producers to increase production, and benchmark spot iron ore prices to their highest levels since ten years to raise. This has also led to an increase in crude steel production. The volumes approached a record level in March despite the fight against pollution.

« Steel producers seem to be making optimal use of the high margins and increasing production before possible further restrictions, » wrote analysts at the Australian & New Zealand Banking Group Ltd. , including Daniel Hynes, in a note. “This leads to a strong demand for raw materials for steel production. Combined with persistent supply-side problems, iron ore prices appear to be well supported in the short term. However, if Chinese stimulus measures end later this year, steel production will eventually slow down, the bank said, and increasing environmental restrictions on the sector could have a significant impact on iron ore prices Australian exports back for a third week according to initial Global Ports data compiled by Bloomberg. BHP Group and Rio Tinto Group announced this week that quarterly shipments were declining due to weather-related disruptions, while Brazilian Vale SA produced less ore than expected. – Bloomberg

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