If environmental-related production controls are to be implemented strictly, the market might have an oversupply of iron ore, the note added.
The most-actively traded iron ore futures on the Dalian Commodity Exchange, for September delivery, closed down 3.7% to 1,163 yuan ($179.25) per tonne. They fell 1.6% this week.
According to Fastmarkets MB, benchmark 62% Fe fines imported into Northern China were changing hands for $214.77 a tonne on Friday, down 1.8% from Thursday’s closing.
Capacity utilisation rates of blast furnaces at 247 steel mills recovered to 86% as of Friday from 81% a week earlier, but was still much lower than same level year ago, data from Mysteel consultancy showed.
“China will have to cut (steel) output by more than 50 million tonnes in the final six months of this year to meet its carbon emissions targets,” said John Meyer, an analyst at London-based corporate finance firm SP Angel.
“The risk for the Chinese government is that steel prices will continue to surge higher if supply is constrained, threatening the government’s broader effort to contain commodity price inflation,”
($1 = 6.4881 Chinese yuan renminbi)
(With files from Reuters)