Shanghai steel prices rose for a third day in a row on Friday after China’s major steelmaking cities of Tangshan and Xuzhou asked mills to curtail output, amid concerns they will not meet their pollution reduction targets this year.
The city government in Tangshan, which accounts for about 10 percent of China’s total steel output, ordered mills to comply with cuts mandated under a so-called first-level smog alert, according to a notice sent to officials on Tuesday.
The directive means production should be cut by 40 percent, from the current second-level alert with cuts of only 30 percent. Xuzhou in China’s No.2 steelmaking province of Jiangsu ordered mills to shut down operations throughout December.
This development “helps a little bit” in extending gains in steel prices, along with hopes that the Chinese government will soon “announce something to stabilise economic growth,” said Helen Lau, an analyst at Argonaut Securities in Hong Kong.
Posting their second weekly increase, the most-active rebar contract on the Shanghai Futures Exchange ended the session up 1.7 percent to 3,445 yuan ($499.64) per tonne, while hot rolled coil gained 1.1 percent to 3,444 yuan.
The most traded iron ore on the Dalian Commodity Exchange advanced 1.3 percent to 482 yuan per tonne.
Coking coal climbed 2.2 percent to 1,256 yuan per tonne and coke rose 0.5 percent to 2,016 yuan.
Lau, however, said while news about fresh output curbs should support prices, Chinese demand remains weak because the winter weather has slowed down construction activities.
Also supporting prices, government data showed China’s crude steel output dropped to a seven-month-low in November as shrinking profit margins prompted producers to reduce production and emissions restrictions curtailed operations.
Falling output of major steel products, tighter emission restrictions at local governments and expectations of stable economic conditions in 2019 all help to buoy the market sentiment over the long term, analysts at CITIC Futures said in a note in Mandarin.
China’s politburo, the top decision-making body of the Communist Party, said on Thursday the country will keep its economic growth within a reasonable range next year, striving to support jobs, trade and investment while pushing reforms and curbing risks.
Spot iron ore for delivery to China SH-CCN-IRNOR62 was unchanged at $67.00 per tonne on Thursday, according to SteelHome consultancy.