Regulators in China’s Tangshan city are trying to restrict steelmakers in a bid to restrict the price increases in steel and control carbon emissions in the region.
The city’s regulators have banned steelmakers from negatively affecting the market order by manipulating prices, spreading price-hike information, or storing goods after its government pledged to address violations including suspending or revoking steelmaking licenses.
Some manufacturers stopped taking new orders due to these regulations, which has limited availability and resulted in higher prices. Tangshan’s steel industry makes up about 14pc of China’s total steel volumes.
Tangshan’s Premier Li Keqiang urged China earlier this week to deal with surging prices. Keqiang pledged to control the commodities’ surge given the government’s concern on the spot and futures markets. Price ceilings could impact manufacturers’ profitability.
China regulations impact iron ore
Iron ore and steel futures prices dampened on the news. Demand for iron ore is anticipated to soften with the implementation of output restrictions and the news fueled a 9pc drop in iron ore futures in the Dalian Commodity Exchange. Rebar and hot-rolled coil (HRC) prices in the Shanghai Futures Exchange for October delivery also dropped by about 6pc on Friday. Dalian’s coking coal and coke futures declined by about 6-6.5pc.
Chinese regulators are concerned about market stability, inflation, and the ability of downstream manufacturers to continue operating on elevated steel prices. Chinese builders have slowed purchases of steel-based materials due to the rapid price hikes and while construction projects are expected to continue until June, some companies are suspending or delaying their projects until they can buy steel with sufficient operating margins.
Chinese steelmakers, attracted by the rising profit margins on finished steel have increased production despite government rules on carbon emissions. Government agencies are scheduling inspections at steelmaking mills. Chinese trading houses lifted iron ore trading limits and cess for steel and coking coal trades to manage the market.
China has also announced that it is targeting seven provinces that encountered higher energy use in Q1 2021. The country is hastening the conversion of power, steel, non-ferrous metal, and petrochemical industries to reduce emissions as they are the largest industrial contributors of pollution in the country.