Steel and iron ore futures in China advanced for a third session on Wednesday, hitting their strongest in three weeks amid sustained efforts by Beijing to tackle excess steel production capacity.
The drive since last year by the world’s largest steel producer to reduce surplus capacity has helped Chinese steel prices snap a six-year losing streak, and they began 2017 higher as well.
Iron ore has piggybacked on steel’s rally, although traders say plentiful stocks of the raw material at China’s ports suggest lean demand.
Apart from shutting outdated capacities, China will also eliminate by June 30 all production of substandard rebar steel, according to local Chinese media reports.
“(Beijing has) elevated the policy to the equivalent of political mission,” said Argonaut Securities analyst Helen Lau.
“In other words, if local government officials don’t abide by this measure, they will risk losing their jobs,” Lau said in a note.
The most-active rebar on the Shanghai Futures Exchange was up 2.2 percent at 3,164 yuan ($457) a ton by the midday break, after touching a three-week peak of 3,202 yuan.
Annual production of substandard rebar, or construction steel, in China was around 40-50 million tons. The closure of these producers implies that China’s annual rebar output will be reduced by at least 20 percent, said Lau. China produced about 200 million tons of rebar in 2016.
Iron ore on the Dalian Commodity Exchange was last up 2.8 percent at 596.50 yuan a ton. It earlier touched 602.50 yuan, the highest since Dec. 16.
Iron ore is “not driven by fundamentals,” said a Shanghai-based trader, citing ample supply of the raw material at ports.
Stocks of imported iron ore at major Chinese ports reached 116.7 million tons on Jan. 6, according to SteelHome consultancy, the most since SteelHome began tracking it in 2004.
Iron ore for delivery to China’s Qingdao port climbed 2.2 percent to $79.43 a ton on Tuesday, according to Metal Bulletin. – Reuters