The new year has started with something familiar from the last - a bubble in Chinese iron ore and steel prices.
The most-traded iron ore contract on the Dalian Commodity Exchange leapt by as much as 8 percent on Monday, in the process reaching a three-year high of 657.5 yuan ($95.29) a tonne.
Its gain so far this year is about 18 percent and the contract is around four times higher than the low reached in July 2015.
It's much the same story with Shanghai steel rebar, the benchmark construction grade, which gained 5.2 percent on Monday and is up about 16 percent since the start of the year.
The strong rallies so far this year appear to owe more to sentiment than actual demand and supply fundamentals, which raises the possibility of a repeat of last year's medicine, tighter controls on commodity trading.
The main driver for steel's surge is the Chinese government's intention to keep closing excess capacity in polluting heavy industries, such as steel, iron ore and coal.
China wants major state-owned businesses to cut 6 million tonnes of steel production and 24.7 million tonnes of coal capacity this year, official media reported on Jan. 12.
This is a slight change of emphasis on the steel front from last year when the government wanted capacity cuts as opposed to output cuts.
Full-year figures are not yet available, but China's steel output rose 1.1 percent to 738.94 million tonnes in the first 11 months of the year compared to the same period a year earlier.
The rate of growth has also been accelerating recently, with November's production jumping 5 percent year-on-year, the fastest monthly pace in two years.
What was achieved in 2016 was about 45 million tonnes in steel capacity cuts, even as output was rising.
Given China's steel production capacity is still above 1 billion tonnes per annum, it is clear there is still plenty of scope for further capacity cuts, something the government aims to achieve.
Output of low-grade steel in small, polluting furnaces is to be eliminated by the end of June, a move that could cut as much as 4 percent of China's steel output, according to a Jan. 11 report in state media.
What is currently happening is that steel makers are still making profits and are thus incentivised to continue producing, and the output that is being closed is less profitable, low-technology and polluting.
The question is whether China's economic growth will be strong enough, and in the right sectors, to use up all the steel being produced.
This is especially the case given that exports are unlikely to grow strongly, given that protectionist measures against China's products continue to mount.
China's steel exports dropped by 4.4 percent in 2016 to 95.22 million tonnes, still a significant amount and about 8 percent of the country's total production.
Source:Daily Mail