Six inspection groups were sent out at the end of May to 10 major steelmaking provinces across China to supervise the remedial treatments for environmental protection, which may rein in the rising crude steel production and improve the market sentiment, market sources said.
The ten provinces -- which include Hebei, Henan, Inner Mongolia, Ningxia, Heilongjiang, Jiangsu, Jiangxi, Guangdong, Guangxi and Yunnan -- had a combined crude steel production of 433.5 million mt last year, accounting for 52.1% of the country's total production, S&P Global Platts calculation based on the data from National Bureau of Statistics showed.
This round of inspection, which will last for one month, might further increase the number of output cuts across the country, helping cap the rise in crude steel production, one Shanghai-based industry analyst said. In turn, this will raise the market sentiment and spur steel prices, particularly long steel, he added.
Crude steel production at China Iron and Steel Association member companies over May 11-20 set another new record high, averaging 2.003 million mt/d. This was up 3.1% from the first 10 days of May and up 10.1% year on year.
Following the output cuts in Hebei, Jiangsu and Shandong provinces, there were market talks that a number of electric arc furnace producers and induction furnace mills in Guangdong and Guangxi provinces had shut down their production last week due to the upcoming inspection group over June 5-July 5. The utilization rates in some mills were substantially higher than their capacity filed with the Ministry of Industry and Information Technology.
Mills in some places were routinely ordered by local governments to stop production to avoid inspection. However, this is no longer allowed now, according to an advice released by Ministry of Ecology and Environment.
As a result, the most active October rebar contract on the Shanghai Futures Exchange was given a boost Tuesday, which up Yuan 17/mt ($3/mt) or by 0.5% on the day to Yuan 3,736/mt ($584/mt).
However, some market sources were worried that the domestic spot prices lacked momentum for a further rise, as demand remained sluggish in June -- a traditional weak season for steel market -- and end-users held off buying for fear of a drop in the current high price levels.
In Beijing's retail market, spot prices for 18-25 mm diameter HRB400 rebar Tuesday were assessed down Yuan 5/mt on the day at Yuan 4,005/mt ($626/mt) ex-stock actual weight, including 16% VAT. The prices have fallen Yuan 40/mt from last Friday.