Shanghai steel futures recovered from an early fall on Monday, as the government in a key steel producing area ordered output cuts to fight pollution.
The government of Tangshan city in the top steel producing province of Hebei has ordered sintering plants to cut production for the rest of the month as it aims to improve air quality, according to a document issued on Monday and seen by Reuters.
“Steel demand has turned out to be better than expected amid a slow season, and there are interruptions in supply while inventories owned by both steel mills and end users are low, so prices are getting a lift,” said a trader in Shanghai.
Traders said sintering plants and rolling mills in the Tangshan region would have to entirely stop production during the last week of July.
The most-active October rebar on the Shanghai Futures Exchange had risen 0.8 percent to 2,421 yuan ($362.04) a tonne by the midday break. It fell in early morning trade and rebounded after the output cut notice was circulated.
Cement producers, construction sites and some other plants will also need to cut production and transportation to reduce air pollution, according to the document.
However, steel mills are allowed to keep running blast furnaces which are used to process iron ore to pig iron, traders said.
Steel demand is expected to get support as China, the world’s second-biggest economy, is likely to roll out more stimulus to boost demand and bolster the economy while pushing for supply-side reform at the same time.
Soft Chinese inflation and G20 concerns that the global recovery remains grim are hardening views among some economists that more government stimulus will be needed to support China.
The most-traded September iron ore on the Dalian Commodity Exchange had climbed 1.8 percent to 431 yuan a tonne by the midday break.
Iron ore for delivery to China’s Tianjin port .IO62-CNI=SI stood unchanged at $55.20 a tonne on Friday, data from The Steel Index showed.