Two-week steel output reduction in China to benefit metal ore

The Chinese government wants to see clearer skies in the days to come, for two weeks, at least. Beijing officials want to have a more attractive environment on August 22 to 30 to please the attendees and participants of the World Track and Field Championships to be held in the city. Thus, the government has ordered production cuts at some mills to ensure cleaner air during the ceremony.

The city beautification project will go on until September 3 when the country hosts a parade in Tiananmen Square to celebrate the 70^th anniversary of Japan’s surrender, marking the end of World War II.

With this, analysts are expecting stainless steel mills to ramp up their production to offset the losses that they would obtain from the said operations disruption.

“ I have heard there may have been some modest pickup in steel production ahead of enforced cutbacks in late August, early September for World War II end-commemoration in China," analyst Daniel Morgan told the Brisbane Times on Wednesday.

The unexpected rush could possibly increase the demand for base metals from the country, specifically iron. Before rallying back into a bull market this week, the metal has dropped to a six-year low below US$45 [AU$61] per metric tonne in July when Rio Tinto Group and Vale raised output into a saturated market.

"We could easily see sub-US$45 a ton as part of the normal volatility in this space, but I don't think prices would sustain levels below US$40," Morgan Stanley said in a statement.

There is no assurance that a two-week demand surge could potentially give other base metals a sustained bull market rally, but it would also affect imports, which could help improve their prices on the London bourse.

On Wednesday, the segment once again crashed collectively on the London Metals Exchange (LME) after the U.S. dollar maintained its strength against other currencies.

However, several miners continue to obtain strong industry reputation from investors amid the precarious market. One of them is Amur Minerals Corporation (London AIM: AMC) , which remains one of the most anticipated miners in the base metals segment for its still-unmined 90 million tonnes of nickel ore at the Kun-Manie reserve, one of the biggest nickel mining facilities in the world today. The company started gaining popularity in 2014 when it announced its pre-production licence application, which it obtained from the Russian government last May. It remains strong at 16.17 pounds despite slightly going down by 0.8 percent on August 5.

Some ore producers, on the other hand, fear the possible effects of the looming nationwide steel company shutdowns in China due to the country’s tougher environmental rules to solve the severe steel capacity glut that has depressed prices and suppressed the segment with crippling debt.

According to Reuters , 28 million tonnes of crude steel will not make it to the global market until 2017 as a result of this new law. The countrywide steel production cut says that the base metals segment could end up in another round of bear market rally.

But China’s market, as most analysts would say, is at its most unpredictable state now. Hence, anything can happen, and the anticipated price recovery is still far from being totally farfetched.

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