Friday was indeed an eventful day as investor sentiment rebounded on news of Chinese government giving green light to 60 infrastructure projects worth more than USD 150 billion on September 5/6 fuelling hopes the world’s growth engine China may get a lift from the fourth quarter.
China’s powerful economic planning body, the National Development and Reform Commission, announced approvals for projects that analysts estimate total more than CNY 1 trillion, roughly a quarter of the total size of the massive stimulus package unleashed in response to the global financial crisis in 2008.
As a result prices of shares and steel futures contracts jumped on Friday giving a hope of revival of Chinese steel sector. The most active rebar contract for January delivery on the Shanghai Futures Exchange moved up by 5%, its daily upside limit, to CNY 3,406 per tonne from all time low of CNY 3,218 on Wednesday.
NDRC announced the approvals of project plans and feasibility reports for the 25 projects in cities including Shijiazhuang, Taiyuan, Lanzhou, Guangzhou and Xiamen. National Development and Reform Commission approval of rail transit construction in 17 cities on September 5 including Shijiazhuang, Taiyuan, Lanzhou, Shenyang, Guangzhou, Xiamen, Changzhou, Harbin, Shanghai, Tianjin, Chengdu, Xi’an, Changchun, Ningbo, Suzhou, Qingdao and Shenzhen. According to the China Association of Metros an organization under the direct supervision of the NDRC, forty Chinese cities will have subway systems by 2020, bringing the total track length to 7,000 kilometers, 4.3 times the current length.
NDRC indicated this approval of rail transit construction projects embodies the stable economic growth and meanwhile, will guarantee relatively stable and continuous demands for steel products. These rail transit construction projects should drive consumption of steel products in China.
Although SHFE rebar posted recover on Friday, the physical market did not pay much heed and most of the prices went down further. As per Chinese information portal SeelHome, the scenario on Friday was as under
Steel scrap - Down by CNY 40 per tonne to CNY 60 per tonne at Guangdong, Henan, Hunan and Hebei
Pig Iron - Down by CNY 20 per tonne to CNY 50 per tonne at Shandong, Guangdong, Henan, Yunnan and Guizhou
Rebar - Down by CNY 10 per tonne to CNY 40 per tonne at Hefei, Nanchang, Guangzhou, Nanning, Changsha and Wuhan
HR - Down by CNY 30 per tonne to CNY 60 per tonne at Changsha, Wuhan and Beijing
But after a long time, price recovery was seen for billets, plates and HR was also seen at select locations
Billets - Up by CNY 80 per tonne at Hebei
Plates - Up by CNY 20 per tonne at Changsha
HR - Up by CNY 30 per tonne at Shanghai, CNY 20 per tonne at Nanjing, CNY 30 per tonne at Wuxi and CNY 50 per tonne at Guangzhou
The price recovery at these locations clearly suggests that there is a very acute chance of changed sentiments on Monday opening with substantial recovery on board across all provinces and products
But the sentiment lift may be temporary pending details on how these projects would be financed, with the central government unlikely to shoulder the funding burden. Moreover China's continued curbs on the property sector may also limit the impact of the infrastructure projects as construction accounts for 30% of China's steel demand versus 20% for infrastructure.
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. As per unconfirmed reports the Chinese steel capacity is in excess of 850 million tonne as against consumption of about 650 million tonnes
Incidentally, the announcement comes just before a deluge of Chinese economic data due on Sunday that could our worst fears that a down swing in the world's second biggest economy has stretched into a seventh straight quarter.
To avert a prolonged recession, Beijing launched a CNY 4 trillion stimulus in 2008/09. But the experience saddled it with a pile of bad debt, forcing China to proceed with care on spending this time.
Source - Strategic Research Institute (SteelGuru)
(www.steelguru.com)
