Chinese steel futures rose today following a decision by north China's steel production hub of Tangshan to shut seven blast furnaces before 10 March to improve its air quality.
The Tangshan government yesterday listed 10 measures to cut air pollution this month, including the closure of seven 450m³ blast furnaces at four steel producers in the city. Operations at a local producer will also be shut completely before 10 March.
The impact on production was not specified by the government. But forecasts on the impact of the closures on hot metal production vary, with one participant putting it at 5,000 t/d of hot metal output losses. Another projected it much higher at 12,000 t/d.
The number of trucks allowed to enter steel mills will also be cut by 50pc. The truck quota for Tangshan's largest steel producer Sinogiant was cut from 2,900 to 1,450 in March.
Steel and iron ore futures moved up in response today, as participants expect production cuts to lift downstream prices and in turn support mills' margins. Mills' higher margins are often supportive of iron ore prices, offsetting the impact of demand losses because of curbs on hot metal output.
The Shanghai futures exchange's most actively traded May futures contract for rebar rose by 3.86pc to 4,842 yuan/t today. The most actively traded hot-rolled coil (HRC) futures contract rose by 3.46pc to Yn5,026/t, the highest closing price since the contract was launched in 2014.
Rebar producers' profits have increased to around Yn150-300/t in recent weeks, after turning negative before the lunar new year holiday last month. Profitability for HRC producers have increased to around Yn240/t in parts of China from around Yn170/t prior to the holiday.
The Tangshan government's curbs comes days before the start of China's twin parliamentary sessions. Environmental restrictions are common around the political event.
The local government also published the exact pollutant discharge amount allowed for major steel mills, including indicators for dust, sulphur dioxide and nitrogen oxides. The overall pollutants' discharge in Tangshan for the month will be cut to 45pc of the average amount in January and February this year.
The stricter pollution control measures are aimed at lifting the city's environmental rankings after it came in fourth from the bottom during last year's rankings involving 168 cities.
Tangshan's crude steel output was 144mn t last year, up by 8.3pc from a year earlier, accounting for 13.52pc of China's total crude steel output of 1.065bn t.
Tangshan has also begun a pilot programme to cut pollution emissions from its steel industry in 2021 by 40pc from a year earlier.
