Iron ore futures continued to slide on production restriction in China to comply with stricter environmental regulations.
The most-traded May iron ore contract on China’s Dalian Commodity Exchange (DCE), fell for the second consecutive day by5.24% day-on-day or down RMB 57.50 to RMB 1,040.50/mt on Wednesday.
The steel rebar contract on the Shanghai Futures Exchange also moved downtrend and dropped by 2.61% or RMB 123 day-on-day to RMB 4,589/mt.
More mills to cut output amid strict environmental regulations
The declining futures were attributed to market uncertainty on more tightening environmental regulations that restricted steel production and limited trucking transportation between mills and ports.
So far, around 25 mills were asked to reduce emissions by the Chinese authority as of March 7, with a sintering cut of at least 50% being imposed.
Some trade sources expected the number of mills to undergo for sintering cut to increase later in the month with introduction of stricter environmental policies by the Beijing policymakers.
Higher profit margins for Chinese mills
China’s mills profit margins had increased in February despite rising raw material costs, according to Mysteel.
During February, Chinese blast furnace steel mills were estimated to have an average profit margin at RMB 113/mt for making rebar products as compared to a margin loss in January 2021.
However, the most profitable steel products belonged to hot-rolled coils (HRC) with average margins of RMB 269/mt in February against near losses of steelmaking at the start of the year.
The high margins were attributed to better domestic steel prices that grew shortly after the Lunar New Year holidays in mid-February as the industry prepared for the construction season starting in March.