Chinese steel futures prices took a breather on Tuesday after the dramatic declines across ferrous prices on Monday. News that Jiangsu province will restrict more steel production in the short term due to a smog alert helped steady sentiment. This has not removed the fact however that the market is firmly in a period of weakness, Kallanish notes.

On the Shanghai Futures Exchange the January 2019 rebar contract closed at CNY 3,579/tonne ($516/t), CNY 26/t higher, while the same contract for hot rolled coil closed CNY 3/t lower at CNY 3,389/t.

After the sharp decline in prices on Monday prices steadied on Tuesday. Futures trading was still fairly active, but prices were caught between those which expected further declines and those which where positioning themselves for a slight upwards correction.

Sentiment was bolstered by news of several areas announcing responses to heavy smog in northern and eastern China. Jiangsu province issued an orange smog alert, triggering a range of restrictions in several steelmaking cities. The increase in the alert level to orange for 27-30 November means that production restrictions will increase from 30% of capacity to 50%. It also means raw materials cannot be transported by road until restrictions are eased.

The short-term nature of the restrictions and the small increment in restrictions means this is unlikely to overturn the weak sentiment in the market. Stockists are still reluctant to buy and are likely to remain so in the near future. That leaves little support for the market until near the end of the year.