May 6, 2019 / 7:24 AM / 3 months ago

UPDATE 1-Shanghai steel futures fall on Trump's tariff threat

* Trump threatens tariff hike on Chinese goods this week

* Tangshan city to enforce stricter production curbs (Adds closing prices)

BEIJING, May 6 (Reuters) - China’s steel futures dropped on Monday, the first trading day after a four-day national holiday, hit by worries over the outlook for trade after U.S. President Donald Trump said he would hike U.S. tariffs on $200 billion worth of Chinese goods.

That came as the two countries had been working to reach a deal to end a months-long tit-for-tat trade war following rounds of negotiations among their senior officials.

Media reported that China is considering cancelling the trade talks with the United States this week after Trump’s threat.

Benchmark construction rebar futures on the Shanghai Futures Exchange fell 1.4 percent to 3,756 yuan ($554.06) a tonne.

Hot-rolled coil prices dropped 1.6 percent to 3,714 yuan a tonne.

However, tightened environmental measures in the top steel-making city of Tangshan stoked concerns about supply, offering some support to prices.

Tangshan’s government last week ordered steel mills in seven districts to halve their sintering and shaft furnace operations in May to improve air quality.

“According to our estimation, around 29.2 percent of blast furnaces in Tangshan will be shut in the second quarter, which would help ease output increases of steel products,” analysts from Jinrui Futures wrote in a note.

Steel mills in Tangshan enforced an average of around 20 percent production restrictions in April.

The heightened production curbs are expected to drive up profit margins at steel mills, with prices for raw materials climbing in their wake, analysts said.

Prices for steelmaking materials rose, with the most-active iron ore contract on the Dalian Commodity Exchange up 0.6 percent at 638 yuan a tonne.

Coking coal prices edged up 0.8 percent to 1,362.5 yuan a tonne, while coke climbed 1.2 percent to 2,063 yuan.

($1 = 6.7790 Chinese yuan)

Reporting by Muyu Xu and Dominique Patton; additional reporting by Enrico Dela Cruz in MANILA; Editing by Joseph Radford

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