China's steel futures rose on Monday and were headed for a third session of gains in four on concerns of tight supply, as the top steelmaking city of Tangshan in North China's Hebei Province started six weeks of further production cuts.
Tangshan has ordered mills to deepen output cuts from July 20 until August 31.
The government did not instruct factories to cut output by a certain amount, but two steel mills told Reuters they had shut 50 percent of sintering capacity and 30 percent of capacity at blast furnaces.
Benchmark Shanghai rebar futures were 0.5 percent higher at 3,999 yuan ($591.25) a ton after gaining 4.7 percent last week, their biggest increase since early June.
"China's restrictions on steel production are likely to ensure domestic steelmakers' margins remain high," ratings agency Fitch said in a statement.
The average profit margin reached 700-800 yuan a ton at Chinese mills, one of the highest in the past year.
The utilization rate at blast furnaces of steel mills across China had increased 0.13 percentage points from the prior week to 70.99 percent as of Friday, Mysteel data showed.
Fitch warned that environmental measures would dampen demand as other heavy industries that consume large amounts of steel will be constrained by emission targets, but believes steel supply is likely to fall more sharply than demand over the winter.
An environmental official said at a conference on Saturday that production curbs in China's steel sector would vary from mill to mill in the winter season based on the emission levels at each mill, while a Tangshan official said environmental measures in the city will be more and more stringent until at least 2020.
