Steel prices gain in June, but supply clouds outlook

Updated 2017-07-07 10:01:36 Shanghai Daily

China's iron ore prices gained since late June boosted by supply-side reform and a fall in low-quality steel production, but analysts do not see larger gains soon as supply remains high after a surge of imports.

The Iron Ore Price Index reached 228.79 points at the end of June, 19.32 points higher from a month earlier, the China Iron and Steel Industry Association said yesterday.

Prices bottomed on June 13 at US ton before rebounding to above a ton since June 27, said Wang Guoqing, research director at domestic steel consultancy lgmi.com.

The rebound followed a cut of 42.4 million tons in capacity over the first five months, which accounts for 84.8 percent of the target set for the year, the National Development and Reform Commission said.

"China has cracked down about 120 million tons of 'ditiaogang' — low quality steel made from scrap metal — by closing more than 600 steel companies over the first half this year after a full-scale overhaul," the commission said, in line with plans to phase out ditiaogang by end-June.

"These measures significantly boosted the quality of China's steel industry and lifted investor sentiment and enhanced producer confidence," Wang said.

Some steel plants replenished iron ore stocks during the second half of June, driven by a rebound in profitability bolstered by the supply cut, added Niu Li, an analyst at lgmi.com.

Analysts don't expect further growth — especially large rebounds, — for the coming months as supply remains higher than demand.

China's inventory of imported iron ore totaled 144.1 million tons at end-June, 40.37 percent higher than a year earlier and 2.75 percent more than the previous month, according to the General Administration of Customs.

That worsened oversupply. China produced 9.59 million tons of cast iron from January-May but imported 32.69 million tons of iron ore over the same period.

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