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Dalian iron ore futures are down another 3% over continued concern over new emissions restrictions in the major steelmaking hub Tangshan. Today's move follows Friday's sell off as investors soured over optimism over Chinese demand. China is the world’s biggest steel producer.

Tangshan Emissions

Tangshan Emissions Cloud The City

The Dalian Commodity Exchange (DCE) is the world’s largest futures market for plastics, coal, and iron ore. The DCE is an important futures trading center in China.

The most-traded May contract for iron ore on the Dalian Commodity Exchange fell 2.8% to 1,133.50 yuan ($175.11) a tonne on Friday after two consecutive days of gains and hitting a record-high of 1,185 yuan a tonne on Thursday. Dalian iron ore fell 0.7% last week its first weekly drop in five. On Tuesday's open the contract traded down over 3% after the open.

Dalian Iron Ore Futures 3 8 2021

Traders are concerned about China cutting its steel production capacity to reduce carbon emissions and easing restocking demand for steel products. China’s Ministry of Industry and Information Technology announced that China needs to cut steel capacity to meet carbon neutrality measures last week.

The selling flowed over to the Singapore Exchange where it's main Iron ore’s front-month contract fell 2% to $168.25 a tonne, but still eeked out a fourth straight weekly gain. Additionally the seasonal restocking cycle of national steel inventories is nearing completion with the growth in stocks slowing last week, meaning that some mills will soon start to moderate capacity utilization rates.

China’s Ministry of Industry and Information Technology Emmissions Crackdown.

Local authorities in Tangshan issued a notice last week on Tuesday March 2 that it is cracking down on industries that lag behind in lower emissions improvements. The crackdown is focusing on the phasing out of outdated equipment and capacity, the implementation of strict emissions-reduction controls, cutting down the use of heavy-duty trucks and intensifying inspections.

Decommissioning of blast furnaces

Seven 450-cubic-meter blast furnaces have been ordered to shut down by March 10. The shutdowns are part of a capacity swap program that involves bigger blast furnaces replacing them. Mills include Yanshan Iron & Steel, Tangshan Stainless Steel, Huaxi Iron & Steel and Rongxing Iron & Steel. Xinbaotai Iron & Steel will also shut down all of its production facilities.

While the shutdown of these blast furnaces in Tangshan has been priced in by the market that impact is not expected to be significant. However the ongoing restrictions on emissions will weaken demand for iron ore in Tangshan. Larger blast furnaces will replace these smaller ones are also expected to start up in the first half of 2021, which would mitigate any drop in steel output.

The move may be temporary with iron ore prices getting support from rising prices for finished steel given iron ore indices were on record highs before the crackdown.

Tangshan is already experiencing the effects of China’s annual heating season, which stretches over autumn and winter. During this period, measures to lower emissions are intensified in northern China to offset the coal-fired heating systems that come online to deal with falling temperatures.

Iron Ore Futures Contract of Dalian Commodity Exchange ("DCE")

  • Product Iron Ore
  • Trading Unit 100 MT/Lot
  • Price Quote Unit CNY/MT Minimum
  • Tick Size 0.5 CNY/MT
  • Deliverable Grades Iron Ore Delivery Quality Standard of DCE(F/DCE I001-2019), the deliverable brands and the brand discounts and/or premiums will be separately prescribed by DCE.

Source: Dalian Exchange

From The TradersCommunity News Desk

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