Shanghai steel climbs 2%, coke rallies on winter curbs

Shanghai rebar steel futures climbed almost 2 percent on Friday to near a 5-and-a-half-year high amid China’s plans to impose industrial production curbs during winter for the second year in a row.

Coke prices jumped more than 5 percent on the planned restrictions, hitting their strongest level since mid-September and marking the best week since January 2017. Iron ore and coking coal also rose.

In the latest plan to be implemented from October 1 to March 31, 2019, steel mills in six key northern cities – Tianjin, Shijiazhuang, Tangshan, Handan, Xingtai and Anyang – will be asked to cut 50 percent of their capacity during the heating season.

The steps will be largely similar to those imposed during the most recent winter period – between November 15, 2017 and March 15, 2018 – that asked steel mills, coke producers, smelters and other industrial plants to cut output to limit pollution.

The most active October rebar on the Shanghai Futures Exchange closed up 1.6 percent at 4,187 yuan ($609) a ton, after peaking at 4,199 yuan earlier in the day, near Wednesday’s 5-and-a-half-year high of 4,243 yuan.

The construction steel product gained almost 3 percent last week, the most in three weeks.

“Assuming key focus areas cut 50 percent of capacity while the rest of the areas ... cut 30 percent, we estimate the steel production impact to be at 78 million tons during the winter period,” Morgan Stanley analysts wrote in a note.

Prices of coke, the processed form of coking coal, also jumped. The most-traded September coke on the Dalian Commodity Exchange climbed as far as 2,429.50 yuan a ton, the highest since September 14.

The contract ended 5.5 percent higher at 2,428 yuan, gaining 9.5 percent for the week, its biggest such increase since January 2017.

Iron ore futures rose 2.3 percent to 484.50 yuan per ton while coking coal climbed 1.6 percent to 1,202.50 yuan.