Stricter environmental restrictions, firm iron ore costs to limit downside in spot steel prices

SHANGHAI, Jun 19 (SMM) – Spot steel prices in China are expected to see limited downside room in their recent downtrend, as intensified production curbs in the north lowers supply and as lower prices pushes mills to the verge of losses.

SMM assessments showed that Hangzhou Shagang rebar fell for a fourth straight trading day to stand at 3,905 yuan/mt as of Tuesday June 18, while Shanghai Benxi Steel's hot-rolled coil also dropped to 3,740 yuan/mt.  

As of Monday June 17, electric arc furnace (EAF) steelmakers saw a loss of 20 yuan/mt with steel scrap of tax-included 2,230 yuan/mt as feedstock, while long-route steelmakers saw a profit of 206 yuan/mt with iron ore of $109.3/mt as feedstock, according to SMM calculation.

Last week, environmental officials from northern provinces such as Hebei, Henan and Shanxi were summoned by the central authorities for a talk on winter smog control.

According to the air quality rankings released by the Ministry of Ecology and Environment on Tuesday, northern cities accounted for the majority of the 20 cities with the worst air quality. Top steelmaking hub, Tangshan, ranked fifth from the bottom for January-May.

Several districts of Tangshan deepened production cuts, with suspension across steel mills who purchase billets as raw materials in Fengrun. SMM learned that operation at some steel mills in Tangshan was affected by tighter environmental restrictions. With greater environmental pressure and thinner profits, some steel mills shut for maintenance.

On the demand front, the infrastructure sector will remain supportive of construction materials, while hot weather and rainfall are headwinds.