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The Fujian provincial government issued a notice to local steel mills on June 18 stating that it will enforce crude steel production cuts between June and December this year, with output not to exceed an annual capacity of 35.98 million tonnes.
The stricter production controls over steelmaking are expected to weigh on the raw material consumption of Chinese steelmakers, according to a trader in Xiamen.
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Iron ore prices are likely to come under pressure from the weaker demand and it is anticipated that imports from Australia and Brazil will be higher toward the second half of the year.
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“Iron ore inventories are at a two-year high with more cargoes expected to make landfall in the third quarter in line with an uptick in shipments from Australia,” a Singapore-based iron ore trader said. “A supply glut could crimp any potential upside in prices amid weaker consumption in the domestic portside market.”
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Fujian’s steel production cut announcement will undoubtedly impose strain on Chinese steel demand and, in turn, negatively affect the upstream ferro-silicon market, according to market sources.
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Ferro-silicon is mainly used in crude steel and magnesium production.
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“The crude steel production decrease in 2024, not only in Fujian province but also other provinces, will make downstream steel buyers quite unlikely to make high offers to upstream ferro-alloys including ferro-silicon given the downward market,” one China-based ferro-silicon source told Fastmarkets.
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“Maybe other provinces will release their own crude steel production cut plans later, which will further undermine the upstream ferro-silicon market participants’ confidence,” the source added.
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“To my knowledge, domestic steel mills in China have already struggled with making low profits, and under these circumstances, many steel mills made cautious purchases on ferro-silicon. If there are more crude steel production cuts in other provinces, this could make ferro-silicon purchases even more watchful,” a second China-based ferro-silicon source said. fastmarkets
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- [Editor:kangmingfei]
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