Steel prices rise in ChinaChinese suppliers looking to purchase steel are about to begin shelling out a little extra cash, after the price of steel rose this week.

The increase in steel prices will be compounded by a decrease in supply as a result of the Chinese government shutting down a number of small steel producers. The producers were ordered to close down or cut back production as part of a government efficiency drive.

About 30 small and medium-sized steel mills in Tangshan, the capital of northern China's Hebei province, have been ordered to cut their outputs by up to 70 percent in the coming months.

"While [consumption] will also be affected by the energy-saving, emission-cutting program, the imminent peak consumption season is still worth anticipating, and with the fall in stockpiles likely to be more pronounced in the near future, it provides strong structural support to the rise in prices," industry consultant Mysteel said in a research note.

China's steel mills have also been encouraged by a dip in the price of iron ore - a major component of steel - this week as steel capacity starts to close down, with fines down 7.5 percent from last week. Rio Tinto, a world leader in mining and exploring, has already agreed to a 13 percent cut in iron ore prices for the fourth quarter with Japan's Kobe Steel, and Chinese customers are widely expected to follow suit.

Chinese mills have stayed mum about the new fourth-quarter price, but the discount could save them nearly US$3 billion.
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