China's steel rebar futures jumped to their highest in four and a half years on September 4, extending the previous session's gains on concerns that a furnace fire might spark a new round of safety inspections and closures, tightening supply.
The most-active rebar futures on the Shanghai Futures Exchange rose as much as 5% on the day to hit the highest of 4,194 yuan/t ($639.87/t) since February 2013 in tandem of reports of a blast furnace fire accident at Bengang Steel Plates Corporation that startled the market.
The furnace fire is estimated to affect 4,500-5,000 tonnes of daily steel output at Benang, a subsidiary of government-backed Benxi Iron and Steel Group Co., Ltd. Beyond the impact on Benang itself, analysts and investors worry the incident could trigger stricter safety inspections at mills, bringing production halts and intensifying a supply shortage.
"Under the pressure of strict environmental policy, expectation of tight supply has offset concerns over weak demand downstream which is also likely to be affected by inspections," an industrial insider said.
The potential impact of environmental and safety checks is overshadowing a number of industries in the world's second-biggest economy. Last week, China's State Administration of Work Safety said it will carry out nationwide safety inspections since this month in various industries, including coal, chemical, transportation and construction.
Meanwhile, to meet politically crucial 2017 air quality targets, the Ministry of Environmental Protection (MEP) said it will launch a new round of inspections starting from September till the end of March.
Steel production in smog-prone Beijing-Tianjin-Hebei region will be limited during winter. Mills in some cities, including top steel producer Tangshan, have been ordered to cut capacity by as much as 50% in polluted days.
(Writing by Alex Guo Editing by Tammy Yang)
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