Chinese steel futures prices have tumbled over the past week on
expectations of a steel oversupply, due to a relaxation of production
cuts over winter, market sources said this week.
January 2020 rebar contracts traded on the Shanghai Futures Exchange
closed at Yuan 3,324/mt ($470/mt) on Thursday, down 4.2% from the end
of September.
China's winter emissions control plan does not contain
across-the-board output cut percentages, as was the case previously when
capacity utilization rates were reduced by up to 50%.
Larger, more efficient mills that have invested heavily in
environmental protection facilities will be exempt from any production
restrictions. More autonomy will be given to provincial governments to
monitor the pollution situation and trim output accordingly.
The finalized plan has revised down emissions targets from the draft
plan released in September. The average particulate matter
concentration under 2.5 micrometers from October 1-March 31 is now set
to decrease by 4% on the year in the "2+26 cities" region, down from a
previous indicative target of 5.5%.
Some steel market sources said improved environmental protection
facilities and downward pressure on China's economy were the main
factors behind the relaxed measures.
One Tangshan-based steel mill source said the city government will
still order steel output cuts for the winter season, but to what extent
remained unclear.
Steel traders were skeptical that winter output cuts would be
enforced regardless of the supposed targets. They noted that in
September, when mills were supposed to reduce production ahead of the
National Day celebrations in Beijing, implementation of the cuts lasted
barely a week, from around September 28-October 2.
One trader said there was no indication that steel supply was being
adjusted ahead of the slower demand season that starts in late
October-early November, which meant prices were likely to be pressured
by high steel inventories.
