* Steel, iron ore futures jump over 2 pct
* Surging raw materials eat into mills' profitability
* Coking coal up 6.7 pct, coke up 3.8 pct
(Updates close prices)
SHANGHAI, Oct 17 Chinese steel futures extended
gains to hit a nearly six-week high on Monday, lifted by surging
raw material costs in the world's top steel producer.
A big rally in steelmaking raw materials including coking
coal and coke this year has sharply increased Chinese
steelmakers' production costs and eroded mills' margins, forcing
a growing number of steelmakers to start booking losses.
"Only about half of Chinese steel mills are still
profitable, and some are making a loss of 100 yuan ($15.00) a
tonne," said Li Wenjing, an analyst with Industrial Futures in
"The shortage of coal and coke supply has led to a big spike
in prices, and turned mills' performance to negative and thus
caused them to curb production," Li added.
The most active rebar futures on the Shanghai Futures
Exchange had risen 2.2 percent to 2,431 yuan a tonne by
close. They earlier touched a high of 2,448 yuan a tonne, their
strongest since Sept. 6.
Iron ore futures on the Dalian Commodity Exchange
had risen 2.3 percent to close at 442 yuan.
An environmental crackdown in China to battle pollution and
overcapacity has also hit steel mills' production, though they
could increase output to offset losses when orders pick up.
China's Hebei province, the country's biggest steelmaking
region, has imposed what it calls "special emission
restrictions" on local mills as part of its war on smog,
according to a policy document.
RAW MATERIALS SPIKE
Though China has ordered major coal mines to raise output as
the government looks to boost supply after shutdowns, steel
mills have still found it difficult to restock coking coal and
coke, traders said.
Li expected the supply shortage of coking coal and coke to
last until next spring as cold weather will hit coal mines in
"Given supply of raw materials will remain tight, as long as
demand does not shrink sharply, the overall situation will not
improve," Li added.
Coking coal futures on the Dalian Commodity Exchange
had surged 6.7 percent by the close. They have more
than doubled so far this year.
Coke futures had climbed 3.8 percent by the end of
the day, and have soared 139 percent this year. Iron ore surged
87 percent in 2016.
By sharp contrast, steel rebar futures have gained only 44
percent since the beginning of the year.
Iron ore for delivery to China's Tianjin port .IO62-CNI=SI
rose 0.3 percent to $56.80 a tonne on Friday, its largest gain
since Sept. 9, according to data from The Steel Index. The spot
benchmark was up 4.4 percent for the week.
($1 = 6.6685 Chinese yuan renminbi)
(Reporting by Ruby Lian and Josephine Mason; Editing by Joseph
Radford and Amrutha Gayathri)