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UPDATE 1-China steel prices rise as govt crackdown offsets slow demand
June 26, 2017 / 8:17 AM / 2 months ago

UPDATE 1-China steel prices rise as govt crackdown offsets slow demand

* Rebar on track for first quarterly loss since Q4 2015

* Iron ore technically weaker after 'death cross'

* Crackdown on low-quality steel in focus ahead of June 30 deadline (Updates prices)

By Muyu Xu and Josephine Mason

BEIJING, June 26 (Reuters) - China's steel prices rose on Monday, regaining some lost ground from last week, as investors bet on tighter supplies from government-enforced cutbacks, offsetting concerns about slow demand and rising inventories in the world's top steelmaker.

The crackdown on low-end steel production has been in focus recently as the deadline, for mills to shut induction furnaces that produce rebar used for construction purpose, ends on June 30.

The effort to close small low-tech furnaces comes as Beijing aims to cut excess capacity, tackle pollution and improve safety measures at these mills.

Analysts estimate induction furnaces produced about 50 million tonnes of rebar last year - about a quarter of China's total rebar output.

The most-traded rebar on the Shanghai Futures Exchange extended gains from morning trade, rising 2.81 percent to 3,148 yuan ($460.42) per tonne on Monday, after touching an intraday high of 3,149 yuan per tonne.

Even so, the construction steel product is on track for its first quarterly loss since the fourth-quarter of 2015 amid growing concerns about weakening demand.

Hot weather in the north and heavy rainfall in the south typically slow down construction activity during summer, limiting buying of steel.

Total inventories of rebar SH-TOT-RBARINV rose slightly last week, up by 0.5 percent to 3.76 million tonnes, data compiled by SteelHome consultancy showed. Earlier in June, stockpiles had fallen to their lowest in six months.

Still, mills continue to ramp up output due to buoyant margins.

Utilisation rates picked up 0.46 percentage points to 87.13 percent last week, according to data tracked by SteelHome.

"But considering the weakening demand in summer, the incentives for mills to reduce stockpiles will start to wane," said Orient Futures in a note on Monday.

The most-active iron ore on the Dalian Commodity Exchange closed 0.81 percent higher at 433 yuan a tonne, even as stockpiles swelled again last week. Import data released on Friday showed an increase in shipments of foreign raw material.

The market was on a technically weaker footing after the 50-day simple moving average fell below the 200-day SMA on Friday, in a formation known as a "death cross". The two prices have not collided since March last year, which marked the start of a prolonged rally.

Last week, inventory of imported iron ore at ports SH-TOT-IRONINV rose to 141.5 million tonnes, its highest since 2004, according to data tracked by SteelHome.

Speaking at a conference on Friday, Li Xinchuang, president of the China Metallurgical Industry Planning and Research Institute, forecast that prices could fall as low as $50 per tonne in the second-half of the year due to oversupply. ($1 = 6.8372 Chinese yuan) (Reporting by Muyu Xu and Josephine Mason; Editing by Sherry Jacob-Phillips and Biju Dwarakanath)

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