China's largest steelmaking city Tangshan has extended some restrictions on steel production and sintering operations for the rest of this month, likely supporting steel prices but pressuring demand for mainstream iron ore fines.
Tangshan put the original curbs in place from 24 September to 7 October to ensure blue skies during the national day festivities in Beijing. Mills with an A rating for emissions controls did not have to make any production cuts, but B- and C-category mills had to shut down sintering and pelletising production completely. C-category mills also had to suspend at least 50pc of blast furnace operations.
The new restrictions, which take effect today and run until 31 October, require C-rated mills to cut blast furnace, sintering and pelletising operations by 50pc. A- and B-category mills are unaffected.
Only one mill, Shougang Qian'an, has been rated as A, while another two — Shougang Jingtang and Sinogiant — have B ratings and 30 mills have C ratings, according to the city government. Tangshan's largest steel producer, Hesteel-owned Tangshan Iron & Steel, has been rated a C.
Imposing restrictions on so many C-category mills may sharply reduce steel supply and iron ore demand this month. Mills could purchase more lump and pellet to increase the proportion of direct charge material in the furnace burden, displacing fines.
C-rated mills have been further sub-divided into C1, C2 and C3 categories, but there are no details on how these sub-categories affect the restrictions, if at all.
"Steel mills in Tangshan have received the notice and started shutting down production. These set of restrictions are even stricter than the September restrictions," said the manager of a Tangshan-based mill. "Restrictions will support steel prices. Iron ore demand may not fall significantly as sintering has been under controls of varying extents since the summer."
"The downside risk to iron ore prices is limited,' said the manager of a mill in Fengnan county, Tangshan. "Shipments from overseas mining companies are slowing and stocks of mainstream Australian fines at Tangshan ports are quite tight. Steel mills are anyway carrying low iron ore inventories so there is bound to be more buying over the next few days."
Tangshan, along with 27 other cities in north, east and central China, may soon announce separate steel and sintering restrictions for the November-March winter season. The central government has allowed cities to set their own winter output restrictions, with local governments likely to weigh pollution concerns and a slowing economy when deciding on these curbs.
Tangshan's Caofeidian port will be shut for 24 hours from 8pm today for environmental inspections. This is unlikely to have a major impact on iron ore and steel markets, unless the port closure is extended.
