Chinese rebar futures climbed to their highest in nearly three-and-a-half years on Wednesday on rising concern over tighter supply after Beijing shut some low-quality steel plants to cut pollution and a production capacity glut.
China, the world’s largest steel producer, closed more than 600 steel mills producing low-grade construction steel during the first half of the year, shuttering about 120 million tonnes of capacity, the state-owned China Economic Daily reported on Tuesday.
Analysts estimate that these mills that use highly polluting induction furnaces made about 50 million tonnes of steel rebar, last year, about a quarter of China’s total rebar output. Rebar is mainly used in construction, particularly for reinforcing concrete.
“Due to the elimination of low-grade steel, profit margins at mills remain at a high level, enticing them to increase output,” analysts at Orient Futures wrote in a note.
“However, the newly added supply is still insufficient to fill the gap left by low-grade steel in the short term.”
The most-active rebar on the Shanghai Futures Exchange rose to as high as 3,474 yuan ($511) a tonne, its strongest since January 2014. It closed up 0.8 percent at 3,420 yuan during afternoon trade.
The contract has risen for eight straight sessions and is up 29 percent this year.
Spot rebar prices have also been rising, up 0.4 percent to 3,826 yuan a tonne on Wednesday, with 17 out of 25 Chinese provinces increasing their offer prices, according to data on the website of consultants Mysteel.
Stocks of rebar held by Chinese traders SH-TOT-RBARINV stood at 3.73 million tonnes as of June 30, just above a six-month low hit in early June, data compiled by SteelHome showed.
The low-grade steel producers that China ordered closed used steel scrap as raw material, not iron ore.
The most-traded traded iron ore contract on the Dalian Commodity Exchange slid 1.78 percent to 469.5 yuan a tonne, retreating for a second day.
Iron ore stockpiles at China’s ports stood at 140.3 million tonnes last week, not far below a record high of 141.45 million tonnes reached the previous week.
Other steelmaking raw materials also fell, with coking coal futures down 0.18 percent at 1,122.5 yuan per tonne and coke 0.17 percent lower at 1,772.5 yuan.