Chinese government has recently issued a notice to stop sintering process in Handan (south-western part of Hebei province). Earlier this year, as per 2017 Air Pollution Prevention and Control Chinese government has decided to cut 50% production capacity at blast furnace based on actual power using on daily basis in winter autumn period. This concrete measures will be implemented in major cities like Hijiazhuang, Tangshan, Handan and Anyang.
Market participants mentioned a number mills in Handan city will shut down their sinter and blast furnace operations after the introduction of strict rules and regulations to lower emissions in order to curb pollution as an effort of environmental protection.
After restriction policy Handan crude steel capacity is estimated to have reduced to 49.28 MnT and its crude steel output is estimated to have reduced to 41.88 MnT, if the capacity is curtailed by 50% on strictly basis.
Also with 19th People’s Congress meet which is scheduled to be conducted in 18 Oct’17, mills have been asked to restrict output. Another reason for reduced steel output is approaching winter season which causes pollution in atmosphere.
“A trader shared that government has also instructed to reduce movement of diesel trucks in order reduce pollution. This may hamper inwards movement of iron ore/pellet to the steel mills.”
Possible impact of this notice
1. Chinese steel supply may hamper, which may lend support to domestic and export prices further
2. Mills will use high grade iron ore and pellets in order to increase output. Pellet and lump premium may go up further. Pellet premium is currently at USD 41-42/DMT, CFR China
3. Low grade iron ore demand likely to remain weak. Discount may widen further. No deals reported for low grade iron ore but discounts will not be less than 44-46%, according to participants
3.Scrap utilization may increase in domestic steel making in order to increase output
4. Steel export availability from Chinese mills may fall further
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