Monday blast was on expected lines after the weekend fever of CNY 1 trillion stimulus packages by National Development and Reform Commission approving 30 infrastructure projects. Barely 25% of the 2009 booster it has come as a welcome reprieve.
Steel prices in China were in linear regression over the past 6 months, plummeting by 21% on the trot. Vice like grip of global recession and constricted lending rate had nearly throttled the hitherto vibrant market to death. Regardless of seasonality and half measures by the government turnaround went amiss.
Desperate government entering into the twilight of 2012 with change of guard at the helm was coerced into the USD 158 billion package. On the eve of National Holiday (1-7th October) when the European Commercial Bank spooked an enthralling bond buying proposition for the beleaguered nations (Spain, Portugal , Greece & Italy) timing was perfect for the dragon to seethe .
Market reacted with customary ferocity leaping by 2% on Monday. Ironically the first splashes are being viewed with caution rather than jubilance as fundamentals questions remaining unanswered.
Ambiguity about the funding of these projects, recalcitrant production by Chinese mills and unrelenting grip over the property sector accounting for 30% of steel demand in China continue to baffle experts.
Another point to be noted is that it will take months if not years for China to implement these infrastructure projects and they are unlikely to lift physical steel prices until next year, as the industry is still massively oversupplied.
ECB endeavor at debt easing comes with caveat about the proposal being approved by the parliament of bailing out countries.
Although many market players remain wary that the stimulus driven steel demand will get buried under the huge surplus capacity and production. But in all likelihood, the slide in FOB levels for export would be arrested as mills will start pushing volumes in domestic market giving breather to steel mills globally
Objectively the market is ambivalent caught up in a web of divergent dynamics However radical attempt by the government to shake off the morass is welcome however its sustainability keenly observed during the course of the week.
CLPPI - Chinese Long Product Price Index
CFPPI - Chinese Flat Product Price Index
CHISPI - Chinese Steel Price Index
Source - Strategic Research Institute