China’s steel rebar futures climbed for a third session on Wednesday, rising as much as 2.8 per cent on concerns about a possible tightening of supply as Beijing sends inspection teams to mills across the nation.

The government is sending 18 teams to inspect low-end steel plants as part of a crackdown on low-tech steel furnaces, according to a report by Xinhua News.

China in the first half of the year closed around 120 million tonnes of annual low-grade steel capacity, mostly making products for the construction industry.

The world’s largest steel producer has been clamping down on production of low-grade rebar in a bid to cut excess supply and help tackle pollution.

“Steel supply is limited by inspections, while new capacity has not been released, which provides momentum for the price rally,” said Xu Bo, analyst at Haitong Futures.

Analysts estimate China’s total steelmaking capacity at about 1.2 billion tonnes, with an annual surplus of as much as 400 million tonnes.

Beijing plans to publish new rules targeting pollution from the steel industry in late July, which could result in the closure of even more steel plants.

The most-active steel futures on the Shanghai Futures Exchange closed 0.8-per cent higher at 3588 yuan ($US530.95) a tonne, after touching 3639 yuan in the morning session.

Spot rebar prices gained 0.25 per cent to 3928.21 yuan a tonne on Tuesday, according to Mysteel.

The rebounding steel prices fanned demand for steelmaking raw material iron ore.

The most-traded iron ore futures on the Dalian Commodity Exchange retreated from 1-per cent gains made in the morning, sliding 0.6 per cent on the day to 518 yuan a tonne.

“Traders are reluctant to sell iron ore at this moment as they are expecting a higher price, leading to tight supplies,” analysts at CITIC Futures said in a note written in Mandarin.

September coking coal prices gained 1.4 percent on Wednesday to 1269.5 yuan a tonne. The most-active coke futures climbed 1.1 per cent to 1937.5 yuan a tonne.

Reuters | Financial Review

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