Steel mills in northern China will reduce production at their blast furnaces in the week of June 28 to ensure clean air as the centenary of the founding of the Chinese Communist Party nears.
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However, an expected upward momentum in prices aided by the output cuts is likely to be partly offset by slowing construction activity in northern and eastern China, sources said.
On June 28, S&P Global Platts assessed Chinese domestic rebar prices in the Beijing spot market at Yuan 4,900/mt ($759/mt), unchanged from June 25 despite the news of the output cuts.
The centenary celebrations will start July 1 and will be held in Beijing.
Some mills in northern China's Shanxi province as well as the cities of Tangshan and Handan in Hebei province, have been required by local governments to suspend production at all of their blast furnaces from June 29 to July 1, according to some market sources.
As of June 28, the size of the output cuts was unclear, so it is difficult to estimate the overall pig iron output loss over the three-day period, according to some sources.
Tangshan already reduced the average blast furnace utilization rate to 60% in mid-March, while Handan has had rates down to 80% since late April in a bid to reduce pollution and curb carbon emissions.
Any further decline in pig iron production at blast furnaces, especially in Tangshan, might be limited, some sources said.
Meanwhile, the daily pig iron output losses in Shanxi could be around 160,000 mt/day, equating to 6% of China's pig iron production in May, in the case of the province suspending all of its blast furnaces equating to around 60 million mt/year of capacity, according to S&P Global Platts calculations.
However, construction steel demand has declined as well, as orders have required construction sites in some areas of Shanxi and Hebei to suspend activities over the three-day period in a bid to reduce dust.
Construction activity in eastern China has slowed recently, in part due to rainy weather and enhanced safety inspections.
Some steel traders expect Chinese steel prices to face volatility at current levels into July, as both steel supply and demand continue to trend downward.