January 11, 2017 / 4:02 AM / a year ago

China steel, iron ore extend gains on capacity cut drive

* Shanghai rebar, Dalian iron ore rise for third day

* Iron ore stocks at China’s ports highest since at least 2004

By Manolo Serapio Jr

MANILA, Jan 11 (Reuters) - Steel and iron ore futures in China advanced for a third session on Wednesday, hitting their strongest in three weeks amid sustained efforts by Beijing to tackle excess steel production capacity.

The drive since last year by the world’s largest steel producer to reduce surplus capacity has helped Chinese steel prices snap a six-year losing streak, and they began 2017 higher as well.

Iron ore has piggybacked on steel’s rally, although traders say plentiful stocks of the raw material at China’s ports suggest lean demand.

Apart from shutting outdated capacities, China will also eliminate by June 30 all production of substandard rebar steel, according to local Chinese media reports.

“(Beijing has) elevated the policy to the equivalent of political mission,” said Argonaut Securities analyst Helen Lau.

“In other words, if local government officials don’t abide by this measure, they will risk losing their jobs,” Lau said in a note.

The most-active rebar on the Shanghai Futures Exchange was up 2.2 percent at 3,164 yuan ($457) a tonne by the midday break, after touching a three-week peak of 3,202 yuan.

Annual production of substandard rebar, or construction steel, in China was around 40-50 million tonnes. The closure of these producers implies that China’s annual rebar output will be reduced by at least 20 percent, said Lau. China produced about 200 million tonnes of rebar in 2016.

Iron ore on the Dalian Commodity Exchange was last up 2.8 percent at 596.50 yuan a tonne. It earlier touched 602.50 yuan, the highest since Dec. 16.

Iron ore is “not driven by fundamentals,” said a Shanghai-based trader, citing ample supply of the raw material at ports.

Stocks of imported iron ore at major Chinese ports reached 116.7 million tonnes on Jan. 6, according to SteelHome consultancy, the most since SteelHome began tracking it in 2004.

Iron ore for delivery to China’s Qingdao port .IO62-CNO=MB climbed 2.2 percent to $79.43 a tonne on Tuesday, according to Metal Bulletin.

$1 = 6.9244 Chinese yuan Reporting by Manolo Serapio Jr.; Editing by Joseph Radford

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