China Steel Prices Drop Over 5% On Concerns Of Scrapping Winter Curbs

A worker walks over bundles of steel pipe stacked at a stockyard on the outskirts of Shanghai, China. (Photgrapher: Qilai Shen/Bloomberg)

Chinese steel rebar futures dropped 3.5 percent in early trade morning adding to the 2 percent overnight drop on concerns that the country will abolish the mandatory winter shutdown requirement.

The January contract sank the most yesterday since March to its lowest in more than six weeks, a Bloomberg report said.

China is considering allowing its northern provinces to decide individual output cuts by heavy industry to rein in emissions during the winter as opposed to an earlier plan for blanket cuts, according to a Reuters report. The report indicated that local governments will decide their output cuts so as to limit economic disruption.

An official of China's Ministry of Ecology and Environment, however, indicated that the reports of removing winter output cuts is not true, according to the China Securities Journal. The government official said the document on air pollution curb was misinterpreted, the report added.

Brokerage Take

UBS said in a note that the market treated this news as a stepback to China MEE's policy, raising concerns of higher steel output and lower steel price. “Although MEE has formally denied yesterday eliminating the winter shutdown, the market's sentiment remains weak,” it added.

JP Morgan, in a note, termed any loosening of production cutback targets a negative sentiment wise.

However, on a pure fundamental basis, what it would imply is that there is unlikely to be ‘further tightening' of the steel market. So far we have not seen any newsflow about the ongoing environment related tightening reverse, and hence the $550-600/tonne HRC price range could sustain.

JP Morgan Note