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China rebar mills cut production on coal shortage, costs

Updated: 2016-11-14 10:31

    Chinese steelmakers, who usually ramp up output when steel prices rise, are reacting quite to the contrary now, as tight coking coal supply and soaring costs are forcing a number of them to cut production, market participants said Friday.

    In northern China, rebar makers Fushun New Steel and Jinxi Iron & Steel are idling blast furnaces this month for "maintenance," often a euphemism for unscheduled production shutdowns, said one of their customers in eastern China.

    Mills that have less steel to sell are either keeping offers high or have stopped quoting altogether, a mill source in northeastern China said.

    The climb in coking coal prices, which have risen 275% since the start of the year to $306/mt CFR China Thursday, according to S&P Global Platts data, has seen producers of long and flat steel cope differently, as producers of the latter have seen greater success at passing the higher costs down.

    For instance, while Jiangsu Shagang Group, China's biggest private steelmaker, will idle a rebar production line due to shortage of hot metal, according to one of its customers, no such plans have been heard on their hot strip mills.

    Also in eastern China, Zenith Iron & Steel and Yonggang Iron & Steel said they have plans to conduct maintenance on their rebar lines this month, although they insisted that the outages were routine and conducted annually, and will have little impact on overall output.

    Any production cut will likely have a limited impact on domestic markets, as rebar demand in China typically eases from November due to a slowdown in construction activity during winter.

    Overseas buyers, however, are citing added difficulty in securing material, as the mills that are conducting maintenance are also active exporters, said stockists in Hong Kong and Singapore. With Chinese rebar export offers having risen above $420/mt FOB China actual weight, offers from Taiwan, at similar levels, have suddenly become viable, after four years of being out of the market, a Hong Kong stockist said.


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